Crux Investor recently carried out a great interview with uranium expert and regular Crux contributor, Brandon Munro. He is the CEO of uranium junior, Bannerman Resources (ASX: BMN). He had plenty of insight to share.
We have interviewed Munro throughout this uranium bear cycle; his insights have been incredibly useful for investors.
- The Implications of Cameco’s Announcement that Cigar Lake will be Closed for an Indeterminate Period
- What is Happening With Namibia’s Uranium Production
- What About the Uranium Spot Price Going Above the US$30/lb Psychological Barrier?
- Backwardation of Spot Price v Term-Contract Price
- How are the Utilities Reacting; What Are the other Bush Fires that they are Putting Out?
- How Does Russia VS Saudi Oil Price War Affect Uranium?
CLICK HERE to watch the full interview.
Hey Brandon, How are you buddy?
Brandon Munro: Yes, well thanks, Matt. How are you?
Matthew Gordon: Not bad. Not bad. I assume you’re in Australia and not in Namibia with that backdrop there.
Brandon Munro: Yes, that’s right. A mate of mine pointed out this groovy function in Zoom where you can do a virtual screen. So I don’t claim to be a green screen expert, so everyone out there just forgive me. It might look a little bit tacky, but let’s go with it. It’s a beautiful vista of the Etango demonstration plant, and it gives you the idea that we don’t have a lot of community issues at our project, that’s for sure.
Matthew Gordon: Well, that’s fascinating. So that is Bannerman’s Etango. Oh, there you go. All right. Well, you going to talk us through that next week, I hope, because you’ve got a new deck out. And we’ve been getting a lot of requests; you keep coming on here and telling us how it is all going on the macro, but they want to hear your story because we haven’t done that in a while. So you’re going to do that for us next week? Promise?
Brandon Munro: Let’s do it.
Matthew Gordon: Okay. Good man. Good man. What a week – another wow week for Uranium spot price moving. A little bit more clarity about what’s going on. Just a little, as usual. But I wouldn’t mind talking through some of those things with you. Now, I thought the big news of the week was Cameco, Cigar Lake – indeterminate period for care and maintenance. What does that mean and what are the implications?
Brandon Munro: So, indeterminate means as much to you as it means to me. It is by definition indeterminate. It’s interesting that they used the same language when they put McArthur river onto care and maintenance and that was a couple of years ago and counting. And it is a carefully chosen phrase because they’re basically saying that they can’t predict how long COVID-19 is going to take to play out, particularly in the Northern territories in Canada with lots of indigenous populations and so on. And as Tim Gitzel said in the press release, things have got worse rather than better in the few weeks since they placed Cigar Lake onto a 4-week temporary shutdown. So, it won’t come as a surprise. We were talking that we didn’t think that it would be only four weeks, but now the question becomes, not only for equities investors, but certainly for the traders and the utilities, is indeterminant going to be three months? Is it going to be six months? Could it be longer? I think that there’s as much chance of it being six months as it is three months, for example.
The things that would need to improve to enable them to turn the mine back on – all that we know is it’s really not going to happen in one or two months otherwise they would have taken different measures. So, this could be an event that continues to really grind at the inventories of utilities, but also the nerves of utilities and traders as they have to try and understand how many pounds are really going to be taken out of the market as a result of this.
Matthew Gordon: Okay. And what does it mean for Cameco? Because someone used the phrase with us this week when we were talking about some of the implications here, they said that Cameco has kind of switched off Cigar Lake for the right reasons for, you know, health and safety and you know, the indigenous population at risk, potentially, but they won’t switch it back on for the economics, meaning that they may look for price discovery. It has got a spot price before they switch the production back on there. So, in a way they are kind of controlling the market, I think was the implication. So what is your take on that as a positioning?
Brandon Munro: Look, it might happen as a consequence to what they’ve done, but I certainly believe that they have done it for the right reasons. Cameco are not going to wear this short-term pain simply for the benefit of the market at large; because it is a lot of short-term pain. There’s not only the cost of keeping the project in care and maintenance there’s a cost in terms of employees. Their market cap has gone up and their share price has gone up as a result of the increased Uranium price from this and other events. But nonetheless, it’s still going to chew their cash balance. As much as they will be able to maintain margin by buying in spot and buying in off-market parcels to deliver into those contracts, it won’t be the same margin that they get by producing those pounds, particularly as we see the spot price go up.
So, this is something that is costly for Cameco. It is a difficult decision for them, and I just don’t buy the argument that they’ve made it as some sort of veiled excuse to try and put pressure on the market. That will be the effect of course, but they’ve done it for the right reasons and I do believe that they will try and bring this project back on as soon they’re comfortable doing so.
Matthew Gordon: I agree that they have done it for the right reasons, but would you not also agree that there’s some kind of arbitrage between the lost revenue, lost income while it is on care and maintenance and helping assist in driving the price slowly higher? Is that not part of the calculation? They must have thought about it, when you do the maths, because it is just simple maths.
Brandon Munro: Yes, that is the case, and I think you would get that when you read the press release that they put out, and they said in as many words, there will be some short-term pain here, but the long-term gain, particularly for them and their contract book will certainly outlive and outlast and outperform the short-term pain. So they’re basically saying they’re going to take it on the chin for the next indeterminate period, whatever that is, but it will be beneficial for their business. And clearly they’re referring to the things that you’ve just mentioned.
Matthew Gordon: Okay. And you’re pretty well plumbed into a lot of the CEOs in the space. You obviously work with the WNA as well, so you know, all the players; the great and the good, have you had any feedback from them as to what they feel the implications are of Cigar Lake shutting down?
Brandon Munro: You know, not really. Most of the CEOs are pretty absorbed in their own business at the moment. And the CEOs that are talking about production, or have production, they’re very concerned about just keeping their business going and they are looking at what’s happened to Cameco and KazAtomProm for example, some of the players in Namibia, and they’re just very concerned that that same thing will happen to them.
A number of the other players that I’m talking to have got exploration programs or feasibility programs that they’re looking to do. And you know, the ones in Australia, they can’t get rigs in to be able to explore at the moment with the work that they’re doing, that’s happening elsewhere. So everyone is sort of fighting their own fight at the moment. And obviously amongst retail investors, there’s a lot of rejoicing, but amongst the CEOs, no one’s really rejoicing in each other’s pain at the moment.
Matthew Gordon: Well, I guess they can’t until it hits whatever magic number they’ve set for themselves: whether it be USD$40, USD$50, USD$60 or USD$70. But retail, I mean let’s talk about retail because there has been some huge movement in some of the share prices for some of these Uranium juniors, driven think, predominantly by retail.
Brandon Munro: In Paladin this week it emerged that Sachem Cove and Segra Capital Partners had both become large shareholders in Paladin.
Matthew Gordon: But what does that mean in dollar terms or percentage terms?
Brandon Munro: So, in the order of 8% between them I think is what I heard. So decent positions in Paladin. We have seen similar moves through our register which probably means a number of the companies that are experiencing the same thing. And so there has been this opportunity for the players that are really committed to the Uranium story to accumulate at these low prices. And for my part, I’m really pleased that they have. For the shareholders, it’s been a pretty turbulent time over the last few weeks, and so I am very happy to see those groups averaging down when we’ve been on our knees, rather than day traders coming in and that type of thing. And I think we’re starting to see that in terms of not having as many shares chipped out on the other side as we’ve, well, we have gone up to 150, even 300% from our absolute lows. And we are back to where we did our last capital raising, a year and a half ago, for example. So, it’s, it’s been a quite an abrupt recovery, which has taken a lot of pressure off me obviously, but also, you know, a lot of our shareholders.
Matthew Gordon: Okay. Okay. Interesting. Can we talk about Namibia? What is happening? Because again, I think that it is not quite clear.
Brandon Munro: Yes. So, during the week, this shutdown in Namibia was extended. There is a full shutdown in two provinces, or regions of Namibia, which is where the capital is, but also the Urongo region, which is all the Uranium mining. And that was extended to May, but what has happened is that the Chamber of Mines has successfully lobbied the Namibian government to enable a full return to production by all mining in those affected areas. So, it will be the intention of Husab, and I presume Rossing, to try and get away from processing stockpiles and doing the minimal amount of activity that they have been over the last few weeks and getting back as soon as they can to full production. There’s a little bit of red tape that they need to go through. They’ve got to satisfy the Ministry of Mines and the Ministry of Health that they can do that in a way that complies with reasonable COVID-19 precautions. But the Chamber of Mines is very effective in Namibia. They really do a good job. And so, there’s already a really good dialogue that I’ve been a part of.
I think that’ll happen fairly quickly and I think we’ll see those mines start to get back on their feet, but it won’t be full production, you know, that much is really clear. There are problems with supply. They need to rearrange their rosters. You know, this kind of green team, blue team approach that we’re seeing throughout mining in the world is just really a key mitigation for COVID-19 infections. It’s very hard to get a mine singing sweetly and operating at full production when you’ve got all of those restrictions. So, there will still be a reasonable shave or for what their production levels are, but this talk of shutdowns and extended shutdowns won’t apply to those two mines, at least not for COVID-19 reasons.
Matthew Gordon: Okay, that’s interesting. Have you reassessed your numbers with regards how many pounds that’s going to take out of the market?
Brandon Munro: Yes, and I wasn’t anticipating a, you know, I’ve been on the calls and I’ve been part of all the emails and so on, so I wasn’t anticipating an extended shutdown in Namibia; mining is just way too important for the country, and between mining and fishing, and with the tourism industry, you know, eradicated in the meantime in Namibia, they are absolutely dependent on those two sources for foreign reserves. And you know, bear in mind the Namibian dollar is pegged to the Rand, so they do need to generate foreign reserves.
Matthew Gordon: Okay. can you, this maybe slightly out of your comfort zone, but what’s your understanding about what’s happening up in Niger? Are they, you know, do they have the same issues? I mean, I know they have a strong dependency on Uranium. They’ve been mining Uranium there for 60-odd years, but are you hearing anything with regards to how it’s affecting them up there?
Brandon Munro: No, I’m not. I’m not hearing anything really in terms of major disruption to their mining. I mean, those mines are very remote, they are in the middle of deserts. If some of the speculation that we hear about a Corona virus, not surviving very long on surfaces during heat and so forth, if there’s any store to that, then that might explain why Niger is doing quite well at the moment out there in the desert. Equally it might just be that they’re not testing and then they’ve got no idea. But my understanding at the moment is that the disruption to those Niger operations is very insignificant.
Matthew Gordon: Okay. Okay. That’s interesting. Thank you for that. Now the other big movement this week was, obviously, the spot price moving past that USD$30 psychological barrier. We talked about it the last time we spoke, you have some good views on that one and it’s actually pushed a little bit further than we possibly even hoped or imagine. So, what are your thoughts on what it’s going to be doing? Do you think it can sustain?
Brandon Munro: Yes, so look, the original thesis around the USD$30/lbs psychological barrier is once it breached USD$30/lbs, it would push quickly to USD$35, and that would be an initial resistance point where it would probably draw a breath. So, we are seeing that play out. It was USD$29.80/lbs then very quickly to USD$31/lbs, then USD$32/lbs, then USD$30/lbs to USD$40/lbs. And we haven’t seen any trading data come through so far to date, it hasn’t even started yet. So, there is every chance we’ll see the week finish at somewhere around USD$30/lbs to USD$50/lbs, and I would expect it to continue in reasonably short order through to that USD$35/lbs mark. But what’s different though is we’ve now got a catalyst driving it so there’s every chance we will see the spot price continue beyond that. And really the first time when spot would draw breath for market related reasons is at USD$40/lbs to $45/lbs, and that would be because there’s an expectation amongst traders and others that Cameco, Paladin would start filling their boots with long-term contracts and start turning on McArthur River and Langer Heinrich for example.
Now, even that becomes a bit interesting because the utilities are quite distracted at the moment so their ability to enter a whole bunch of long-term contracts when there’s just so much uncertainty and they’re fighting their own bushfires at an operational level, that calls into question that. So, we could find that over the next weeks and months we see a spot price escalate to those levels, pause there waiting for this Russian supply that some people think will come in, but I don’t see that materialising. I don’t see, with all that Cameco has got on and we thought that the utilities had got on at the moment, I just don’t see them filling a contracting book that’s big enough to get McArthur River up again, that’s not going to happen in a few months in this environment.
So, I would expect there all there will be fits and starts and there will be all of those types of things, but I don’t see any reason why the spot price is going to draw back once it gets to those sort of levels. Now, this is, you know, this is all crystal ball gazing, so by this time next week I could look like look like an idiot, or a fool or whatever.
Matthew Gordon: Or genius?
Brandon Munro: That’s all that we can do, right? We can just look at what is fundamental about the market. And in this case, there’s a bunch of really interesting virtuous cycles here that are very poorly appreciated in the sector. And the one that’s really at play here is the available, or mobile inventory has an inverse relationship to the price. And that’s something that the reporters and the consultants in this industry just either refuse to accept or refuse to talk about.
Matthew Gordon: Explain what you mean, please, because that is fascinating.
Brandon Munro: Okay. The kind of economics 101 view that prevails amongst the utility view and some of the consultants who inform on this market is that well, of course, at a higher price there will be more people who are wanting to sell their inventory. So therefore, the amount of available, or mobile inventory at USD$25/lbs is a lot less than the amount of mobile, or available inventory that’s at USD$30/lbs. And that’s a simple logic that’s easy enough to follow, you know, more people want to make profit at USD$30 than they would at USD$25/lbs, but it just doesn’t work like that. And the reason is that we don’t have much of a principle-based trading element to the Uranium sector. So, we don’t have many people who say, well, you know, I’m just going to put down USD$1 million and buy some pounds with that and wait until my million dollars is worth USD$1.1 million and then sell it. A little bit of that goes on amongst the traders but they have sort of learned that that’s a bit of a fool’s game with how volatile this sector can be.
And so, the material that’s available or mobile, that is mobile when people don’t think the price is moving. So, I’ll give you an example: it might be a utility who’s holding inventory, as they need to manage their own business risks. And their material tends to become mobile where the accountants come and talk to the fuel buyers and they say, now let’s talk about how much we’re sweating our balance sheet, and you’ve got how much sitting there in fuel? Okay, so why have you got all that sitting in fuel? Because the price could go up. But what happened last month? What happened the month before? So, you are telling me that we’ve had this commodity trading of between USD$24/lbs and USD$25/lbs for the last nine months, and you want to tell me that we can’t sell this stuff and make it work harder on our balance sheet? And they get told to sell.
The same conversation is very, very different if they’re saying, so what was it last week? Shit, it’s gone up 30%, okay, let’s not sell that stuff. Our balance sheet is doing just fine. If it went up 30% last week, it could go up 30% next week. Let’s just leave it right where it is. And so, what that means, the inverse relationship means that as the price goes up, there’s less material that parties are willing to sell into the spot market as mobile inventory.
And we saw that a year ago or so when we had a rapid price escalation from USD$24/lbs through to about USD$27/lbs, $28/lbs. The traders, when they started to see the movement, they were rubbing their hands thinking, oh, this is just fantastic. But they couldn’t get the material. They just couldn’t get the pounds to be able to make the turn on that. So that is a virtuous cycle. It operates the other way as well: when the price is going down, there is more pressure on utilities and others to sell their unnecessary material. The perception is, well, we will be able to buy it back cheaper later. And that has hurt us over the last few years. But it’s an example of the virtuous cycle that will catch a number of players who are napping in this industry because they’ve got a, you know, an economic 101 view of how this works.
Matthew Gordon: Okay, that’s fascinating, and I get it; it’s, as you say, it’s trading 101, right? It’s human psychology. That makes total sense. There’s still some confusion when we get these kind of inbound requests or explanations and so forth in terms of the relationship between spot price and term contracts. And you know, we’ve had a few good discussions this week and last week with some CEOs who have given their version of it. And everyone, you know, talks their own playbook, but what is your take on how that relationship is going to work going forward on a bull market, because it is a very different environment from the last, you know, 4 or 5-years.
Brandon Munro: Yes. So, it’s quite interesting because certainly if you’re looking at commentary on Twitter and on other platforms, we seem to have this backwardation and like it’s a big event that the spot price has gone beyond the reported term price. I’ve got to admit, either I’m totally missing something or I just don’t see the significance of that. So, it’s not like Gold markets switching from contango to backwardation or something like that. It’s just that we’ve got a really poorly reported term price that has been caught up by a spot price that is slightly better reporting. And the last two times in recent history when we have had backwardation, if that’s even a thing in the Uranium sector, the first one was in 2007, we had a term price of USD$95/lbs and that subsisted for, oh, it was quite a few months, you know, it was from June 2007 to April 2008. And in the meantime, that’s when we had the spot price achieving new heights on a weekly basis and it ultimately got up to USD$136/lbs.
Now, that backwardation was simply because no one had the appetite to write contracts higher than USD$95 until they saw a sustained higher spot price and they were convinced that that was the new normal rather than just being something that was over inflated. And then of course, in hindsight it was overinflated.
The other time in recent history when we’ve had this reversal was for a very short period of time before Fukushima. So, we had the spot price at USD$74 and we had the term price at USD$72 -so very, very thin difference, much like we do right now. And that was for no better reason than the spot price was increasing quite quickly and because of how long it takes to write and report a term contract, we were just playing a game of catch up. And then of course that game, well there was no catch-up to be played after Fukushima because the spot price fell quickly. And if someone was starting to think of writing term contracts at a premium to a USD$74 spot price, they quickly unthought that.
So, then, to come back to your question, we have seen over time that in a normal market that’s not outlandishly optimistic or not being affected by something pessimistic like the bear market that we’ve had, or for that matter, the Fukushima or shock event, the term price has always traded in the order of a 20% premium to the spot price. And that’s just really a reward for supply certainty and the different options that can get built into a term contracting package.
And that premium becomes more when there is less certainty and probably a bit less when there’s more certainty. So, in a situation where, in the past when there’s been very good diversity of supply, so both geographic and political and commercial diversity of supply, that premium has shrunk a little bit. And then when we started to see a situation where there isn’t very much commercial diversity to supply, like we have now, I’d expect that premium to push 20% and perhaps go higher, depending on where spot really is at the time.
And the other thing is that we are seeing a lot more volume through the spot market and it’s not really a spot market. It’s really a 1-year delivery market, but we are seeing more pounds go through at that level simply because very few producers are prepared to write fixed-price escalating term contracts at the moment. So that’s just a function of how low the price is rather than anything else, necessarily.
Matthew Gordon: Yes, I think, and by definition the contract market is illiquid, in a way; it’s got less data points compared to spot, which is going to pick up on the, you know, the sentiment thematic of the day, as it were. But we again, another conversation that we had with a CEO, it can help sort of clarify some, understand we picked up a year ago and I think perhaps some people feel things are changing, the way that contracts are written. He is saying that he feels that more contracts will be written, term contracts will be written, but based on a sort of moving average of spot. And I think we have talked in the past about structuring these contracts. So, the question is, do you think that these contracts are going to stick to the old model or are they going to need to have the flexibility? Because people sort of have been through what is quite a tough cycle at the moment and give themselves flexibility on both sides.
Brandon Munro: There is a trend towards them becoming more sophisticated, and we have got more traders in the market who are trying to establish some level of derivatives in this sector so there are a few more options with which the utilities have to manage their risk. And so that will lead to greater demands as to flexibility within contracts. And, but by the same token it will, as you say, cut both ways because there is a big push at the moment amongst the larger utilities to try and establish more diversity of supply. So, for example, Namibia has always been extremely important to the US and European utilities for that diversity of supply. And they don’t have that anymore because the two operating mines in Namibia are both now state-owned enterprises, and Chinese ones at that. So, they’re not expecting any new contracts to be written from those mines and they’ve lost an extremely important and diversity angle to their portfolio. They will be doing things to enable flexibility on the mine side to help mines get into production, to deliver that diversity. And for the bigger utilities who are the larger consumers, that is very much in their own interest to do that.
Matthew Gordon: So, you used the phrase there; you spoke about the diversity of supply, and another phrase from earlier in our conversation you talked about, you know, people, people fighting their own fires – it was in relation to CEOs, but I think utilities are, we need to remember they are not a one energy source company; they have got multiple choices. They’re looking at Shale gas, and I think that’s a bigger topic, perhaps we can discuss that another time, but it is worth making the point now that what has been going on in the oil market is also going to have an impact on the way utilities think about nuclear, about Uranium because that has gone slightly wobbly at the moment because of the Russians and the Saudis and their infighting. But you know, state utilities are looking at that, they’re looking at renewable, they’re looking at nuclear and they have got lots of choices. They are fighting fires in their own back yard, as it were. And again, so are you hearing much about those outside influences affecting the way that they’re thinking about Uranium now? Do you think that has sped up their thoughts on maybe coming back into the market a little bit quicker than perhaps they had intended two months ago?
Brandon Munro: Look, I’m not hearing a lot about it, but what I understand is that they’ve got multiple plates spinning, as you say, and I think particularly for the diversified utilities, they’re just trying to get another few weeks down the road for something to look stable and less dynamic and less fluid so they can make some sort of a decision.
Matthew Gordon: Okay, and again, just a conversation that we had earlier this week with a Uranium trader, he said that it has been busier. There’s been a lot more calls; when normally they would expect the utilities to be sitting back and sort of see how the dust settles, they’ve been nervous enough to pick up the phone, place a few small orders, small, nothing meaningful just to kind of get a feel of what’s going on in the marketplace. I thought that, as a survey of one, was quite an interesting reference point. Because again, the utilities are hard to get a hold of, hard to talk to and companies like you get to talk to them. But I just wondered if you were hearing similar tales?
Brandon Munro: And so, if you think about that, it’s not a big difficult decision for a utility to nibble away at spot. What I have heard is consistent with your story, which is that there is a little bit of activity and it’s very much on the edges, but it hasn’t been a lot of utility buying that has pushed the spot price up. There hasn’t been that much volume and it’s probably more about the withdrawal of offers than it is anyone bidding particularly aggressively at the moment. And when you think about that, that’s still consistent with the way that I understand things are moving with the utilities. That might be a pre-approved a decision that was made a little while ago, and a utility, now they have got the budget and they think, well, I better get on the bike here because if I don’t buy now at USD$31.30 and I leave it, either my approval is going to cap out, because we have gone beyond what my authority limit is or I’m going to be going back and I’m going to be paying potentially USD35/lbs,USD$36/lbs, so I just want to get this 100,000lbs bought, locked away and then move on. And now, that’s quite different to gathering up the data and having the dust settle, as you say, to the extent where a utility can start changing its procurement strategy and moving from drawing on inventory versus trying to put some material away in the carry trade market, versus trying to get long-term contracts written. You know, they are bigger level strategic procurement decisions that need a whole bunch of factors that just don’t exist at the moment, not the least of which is access to the executives within the organisation who all running around and fighting their own little wars right now.
Matthew Gordon: Okay, now there’s again, there’s a small thing but when I see it makes me ask questions – so companies like yourself have been dusting off their PowerPoints, updating them, because you always see when companies do something, they have not touched their PowerPoint for nine months, you know that no one is talking to them and they are not talking to anyone. You’re dusting off your PowerPoint, and you’re going to take us through it next week, but do you think that there are going to be a lot of juniors now clearly rejoicing that there has been some movement in the price? And therefore, if they did, because there have been a couple who tried to raise money and have not been able to, and I know you are okay, you’ve got a couple of years runway, we are not making this about you, but just generically, people are starting to dust off these PowerPoints for the purpose of going and having conversations. So, do you think the general funds are going to be excited enough about this small movement over the small period of time to, you know, answer those phone calls that may be coming in from juniors, junior Uranium players? Or do you think indeed, they are picking up the phone and there are lots of inbound phone calls coming to these Uranium juniors, for the first time in a long time? Do you think that that may have been in the price enough to elicit that kind of thinking?
Brandon Munro: I think it has been, at least it has started. My experience is that I have had a lot of inbound contact, a lot of inbound phone calls. So, my dusting off of my presentation is more about having something that is updated for COVID-19 that’s on the ASX platform so that I can have those discussions. So, that level of interest will inevitably tempt a number of companies and boards to start marketing and look at a raising. And there’s a number of my peers who have to raise and they would be pretty foolish to let this opportunity go. And you know, we’ve got to remember that it is such a volatile macro situation at the moment that we could have Uranium continue through USD$35 to USD$40 and some other macro shock result in the market closing, at least for new issues. So, I think there will be lots of PowerPoints thrown around and lots of investor discussions and lots of people getting tapped.
It seems to me to be from the general, it is still a little bit exploratory. Where we’ve been quite fortunate is that there has been a lot of publicity around this. It has partly been because there’s been that strong COVID angle in terms of mine disruption. There’s been a lot of publicity through the actual mining press that we, you know, Uranium is just such a small industry that we don’t normally get very much for that, so I’ve been lapping that up. But also, yes, Uranium is the only commodity that has done well out of COVID-19. Even Gold is, although it has gone up this year, it hasn’t been spectacular by any means yet. So that has raised a lot of eyebrows and the funds that are flexible enough in their mandate to dip into something that’s got as little liquidity as Uranium equities at the moment, I wouldn’t be surprised at all if we see them start to fill their boots at this stage.
And all of the, how would I put it, you know, the guys who normally spring into action at a time like this, we’re certainly seeing that. You know, we are getting the convertible note offers from New York beating down the door. Some of the other usual suspects, they’re obviously getting very active. So, they’re either, they’re sensing the commodity opportunity in Uranium and they are probably hoping that we’re all so beaten up in this sector that we will accept some of their terms as well.
Matthew Gordon: I can imagine. You know, I do think there are some deals to be done out there. There are some great assets and some very average ones. And we spoke with John Borshoff earlier this week. He was, you know, obviously he’s got a slightly different model from most in this space, you know; he of Paladin fame, and they are still looking to make some acquisitions, and he still thinks there’s some deals to be done. I kind of agree with that. If you’ve got the cash, or the ability to get cash. But for people with good assets, I think they’re going to find it a little bit easier to raise money and you know, hold on until this thing does uptick towards those hard numbers that you’ve mentioned earlier. I mean, you know, I do think they will come this year, but I still think there’s going to be a little bit of uncertainty in the market. So, I’m still going to Q4. I’m still going to Q4.
Brandon Munro: Yes. Yes, I think so. There will be volatility that people will be able to, or investors will be able to take advantage of between now and then. But I agree with Q4. I think one of two things is going to happen: COVID-19 will have subsided enough for people to see enough settling the dust to get on with things, and that’s the utilities in particular, or it won’t have resolved itself enough and it just becomes a new normal, you know. We can function in a lot of chaos once we’ve adjusted to it and got used to it. And either of those things are likely to happen by Q4. So that’s when we, I think, we would start to see those types of dynamics come into play.
Matthew Gordon: Okay. Last question: what do you think is going to happen next week?
Brandon Munro:: Oh, well, well, we can’t say that – it will spoil next week’s show, right?
Matthew Gordon: Well, it has just, it’s been great television for the last three weeks. It really has. Just seeing the way, the announcements, people’s reactions. You’ve got extremists. People are very, very excited, and there are a few more smiles out there, which is great. The equities have moved; it has been nice to see. And you know, I hope it sustains and continues.
Brandon Munro: So, let’s throw through a few things out, and let’s not call these predictions, let’s call these hypotheses to test next Friday.
Matthew Gordon: Okay then.
Brandon Munro: So, the first thing is that I don’t think we will see the spot price retrace in the next five sessions next week. And if I think back to say, October, 2018, we went 17 sessions in a row where the spot price didn’t go backwards. There are a few of those where it took a breather, but it was either black or green for 17 sessions in a row without any red at all.
Matthew Gordon: What was the session? What is the time frame of a session?
Brandon Munro: Okay, gotcha. So, 17 trading days in a row where the spot price did not go down. It’s so what it tells us is that this is a sector that does get driven by momentum and I think that that momentum will continue in the next, over the next week at least. So, there’s the first thing. The second thing is I think the situation in Namibia will show a few retail investors that they got a little bit excited about the degree of supply disruption, so you might see equities stabilise this week, maybe a couple of equities come back a bit if they have got a heavy retail focus. And I think as far as the COVID world generally goes, there are just so many calls now for a release of the restrictions that we’ve got from so many different angles. And it’s amazing just how quickly many parts of our society have become A, impatient, but also have become experts on evaluating risk to the extent that they’ve got an opinion about it. And so, I think we will start to see that happen, And that could start to have an effect on the likelihood of, say, Australian mines shutting down.
And that there’s been a lot of investors in Uranium getting hopeful that Olympic dam will shut down. I’m just not seeing that from here. I think that is becoming less likely by the day and from a Uranium investors point of view. All that you can really hope for there is that they lose 5% of their productivity and their ultimate output because they’re running red team, green team type shift rosters and so forth, which are always just that little bit harder to implement with the fly-in, fly-out workforce.
Matthew Gordon: That’s your thesis.
Brandon Munro: Yes. What do you think? Come on. This has to be two ways.
Matthew Gordon: I’m kind of a little bit like, it’s like some of what you said; I think that there’s going to be a little period of, a little pause to see what’s happening, have a look around, because the reality is that no one still, no one knows what inventory is out there. No one. You have come on the show and talked us through the various scenarios of UF6 et cetera, you know, so we can sort of see why last year it didn’t happen, but until, and again you’ve told me that around this time of year, the utilities usually, but may not, choose to share the inventory levels and I could see why they wouldn’t know – it is a chess game. Why give it away? Why give away your secrets? So until there’s clarity in that, I think the reality of situation, the situation hasn’t really changed enough other than people getting very excited about what the impact of, you know, Cigar Lake and Kazatomprom and you know, Namibia and so forth could mean, but no one has actually seen what the realities are. And you know, what that sliding scale of disruption to supply actually looks like. Because again, I think probably it was you who was talking about the way that Kazatomprom, you know, they don’t do spot, they do contracts and they’ve got enough inventory that for their contracts. Cameco have been impacted. So, I would be surprised if it moves quickly until the utilities give us some clarity on what those inventory levels are, if indeed they do, because it’s guesswork, and that makes me nervous as an investor. I’d rather miss some of the bump now and come in slightly later. But, you know, unfortunately I placed my bet about three weeks ago, so I have a vested interest in the market moving, but at the same time, how quickly that moves, I’m probably not as optimistic as some of the voices in the social Twitter sphere and places like that.
There you go. How’s that for a noncommittal answer and assessment?
Brandon Munro: Yes. I’m going to have to learn to make my answers a bit more noncommittal. I’m learning from you constantly, Matt.
Matthew Gordon: I do try. I do try.
Brandon Munro: : But I agree with you that there is a period of digestion that’s going to need to take place, and whether that happens next week or whether that happens over the next month, there are a number of things that we need to digest and a number of things that we can’t digest just yet. For example, until we know how long the Kazatomprom shutdown last, whether it’s three months or two months or four months, because of the way that an ISR mine production tails off as you stop wellhead development. And even that number, it’s not a mathematical number that we can do in the same way that we can calculate how many pounds are lost for every month that Cigar Lake doesn’t turn back on, for example. So there is a bit of a moving feast and I think there will be a digestion. So maybe, maybe I’m happy to elevate your comments into fully committed mode and we’ll redo that next Friday.
Matthew Gordon: I hope I’m wrong, I hope I’m wrong, and it kind of doesn’t matter. We’re talking weeks, you know, or a short number of months.
Brandon Munro: This is fun, right?
Matthew Gordon: It’s just for fun. We’ve placed our bets, unfortunately, you know, so, you know, we will win. But like I say, I just, I want to sort of temper some of the enthusiasm out there and just help people remember that you need all of the facts in place to make informed, intelligent investment decisions and it shouldn’t be guesswork. So we are backing the macro story, like you say, it’s a bit of fun guessing when. It’ll be fine. It’ll be fine.
Right, Brandon, I had better let you go. Thank you very much. Because I know it is late on a Friday night and there’s wine to be drunk. I will be following you, not now, but in a few hours, down that path. What are you drinking tonight?
Brandon Munro: So, I’ve got a GSM that’s breathing at the moment, just waiting for me. So, Grenache Shiraz Mourvedre, Australian. I don’t mind that blend, actually, this is a Barossa Valley, by a family-owned vineyard called Schilt. Awesome people. I’ve met them on several occasions. Real old school, three generations, German family, planted the vines like 130 years ago. Real, real great people. So, I’ve got that to look forward to you.
Matthew Gordon: You do? I’m not quite sure what we’re sure what I’m going to go for. I’ll see how I feel at about six o’clock, you know, and the sun gets past the yard arm and all of that. We shall see. Well, Brandon, thanks so much. I mean, so, so much intelligence. People do love what you are doing, sharing with them your knowledge. So, I’ll thank you on their behalf and also thank you from me.
Brandon Munro: Oh, my pleasure. Thanks for the opportunity to come on and answer some great questions, and I’m glad to see you participating and putting your neck out there. We’re going to keep going with that. I can’t give share tips. I am not giving share tips.
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