Brandon Munro – Implications of Uranium Supply Shortages (Transcript)

A photo of Bannerman Resources CEO, Brandon Munro.

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.

We discuss:

  1. The Implications of Cameco’s Announcement that Cigar Lake will be Closed for an Indeterminate Period
  2. What is Happening With Namibia’s Uranium Production
  3. What About the Uranium Spot Price Going Above the US$30/lb Psychological Barrier?
  4. Backwardation of Spot Price v Term-Contract Price
  5. How are the Utilities Reacting; What Are the other Bush Fires that they are Putting Out?
  6. 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.

If you are a uranium market spectator, feel free to check out some of the recent uranium articles on our platform as well as one of our most recent interviews with a uranium mining company.

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

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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.

A photo of Bannerman Resources CEO, Brandon Munro.

Ur-Energy (TSX:URE, NYSE:URG) – Everybody I’d like to announce (Transcript)

The UR Energy company logo
Ur-Energy
  • TSX: URE, NYSE: URG
  • Shares Outstanding: 160M
  • Share price US$0.62 (29.04.2020)
  • Market Cap: US$95M

Crux Investor interviewed Jeff Klenda, President & CEO of Uranium producer, Ur-Energy (TSX: URE, NYSE: URG).

Klenda tells us what he knows about the US Dept of Energy announcement due this week. And what he thinks these lost pounds mean for his shareholders. Immediate winners and who is at the back of the room.

We Discuss:

  1. The Uranium Market: 7/10 Major Suppliers Taken Offline & What it Means for Ur-Energy
  2. Stagnant Utilities: Will it Drop the Price Down Again?
  3. Rumours from the Uranium Working Group: The Process of Negotiations
  4. The Winners: Ability to Position the Company as an Early Beneficiary
  5. The Price Ur-Energy Needs for Profitable Production
  6. Dynamic Duo: Conversations with Energy Fuels

CLICK HERE to watch the full interview

Matthew Gordon: Hey Jeff, how are you, sir?

Jeff Klenda: Doing great. Thanks for joining me in my home office/library. You know, I don’t get many visitors these days, so nice to have you.

Matthew Gordon: Yes, I’m impressed with that book collection there. So who are those guys over your left shoulder? In the photo?

Jeff Klenda: Yes. Been working on it for years. I actually have read a good number of them though. I don’t get much time for pleasure reading these days.

Matthew Gordon: No, I was just asking you who is the photo of behind you on your left? Who are those four guys?

Jeff Klenda: Actually, those are Senators that shall remain nameless at this time, if that’s okay?

Matthew Gordon: Really? I wish you had a high-res camera, but you don’t. I can’t work it out. Hey, look, we had a great conversation when we spoke, I guess about three weeks ago now, but also lots has happened. A lot has happened. We’ve had Cigar Lake gone down into indeterminant closure. Kazakhstan has closed down for 3-months, possibly longer. They’ll review at the time. Namibia – Rossing, Husab, closed down. BHP – Olympic Dam closed down. Well, sorry, has reduced output. There’s a lot of pounds just came out of the market since we last spoke and I don’t even want to ask you this next question about what do you think that means for you?

Jeff Klenda: Well, if you believe the numbers then approximately 46Mlbs in aggregate have come out of the market. That’s primary production, in less than 30 days. That’s approximately 35% of global primary production. So, what it means to us immediately, of course, is that whether or not the entire economy or the economies of the world will experience that V-shape recovery, we don’t know. But in looking at our chart, we certainly have; from our bottom, we’ve recovered 100% from that time. So, it’s nice to get that, get that pricing back in the stock. And I think that based on just the production and the supply that has come out of the market to date, I believe that we’re in a position where we can move up to and perhaps beyond USD$35/lbs. The last time we were at USD$40/lbs as an industry on spot price, our stock was at USD$2.40.

So, we’re at USD$0.54 – $0.55 right now. And so I would certainly take that any day, but I think once you break above certain of these psychological barriers, like getting past USD$30/lbs was a challenge, now if you break above USD$35, I think USD$40/lbs comes quickly.

And you know, look, the utilities have been paying average prices of above USD$40/lbs for some time now. That was their average, or something like USD$42 to $43/lbs for 2019. So, we’re not exactly in uncharted territory.

These are prices that the utilities are comfortable with. And so I think that we finally are broken out of that a kind of a flat line that we were in; we weren’t able to break out of those collars kind of between USD$24/lbs and $26/lbs.

And, and now to finally break out of that, I would have preferred that it happened, you know, outside of a pandemic. But you know, we’ll certainly take the rise in equity pricing and I think that there’s a lot, there’s so many things going on right now that that the rising prices should actually provide impetus to the utilities to perhaps enter into more aggressive contracting.

I have fielded four RFPs since the beginning of the year. I’ve answered all of them. None of them have quite been at levels where we could aggressively bid to them. But it’s nice to see those RFPs coming into the marketplace. And I think that the supply destruction, the rising prices will lead to more and more utilities realising that they just can’t continue to consume their own inventories, which of course they have been doing for about two years now.

Matthew Gordon: They have, and they’re due to let everyone know what their inventory levels are at and that is one piece of the chess board, which will be revealed to us. But these RFPs are feelers; they’re trying to send them again and get a sense of what people will want to be getting. So that’s just them dipping their toe into the market, and it’s only been a couple of weeks since we’ve been over the USD$30/lbs barrier. How long do you think they will wait before they realise that perhaps, I guess what I’m trying to work at is, do you think the price will drop and fall back again if there’s not some more imminent movement by the utilities? If they do sit back and wait, and are trying to work out what is going on and get a feel for this, do you think that the price will drop again? I think that will send negative messages into the market. Would you think that the impetus will be sustainable?

Jeff Klenda: Well, you know what? That’s a great question. And I think unfortunately, it is one that is really unknowable right now because there’s too many players that that it is contingent upon their activities. And let’s face it, most prominently is Kazakhstan. It’s nice to see them suspend operations, albeit for only a 3-month period of time. We’ll certainly take it. That’s by their calculations, they believe that that’s going reduce their overall to 2020 production by about 10.4Mlbs. We would love to see that. Whether or not if they restart production or if this turns into a short-term shutdown of all of these facilities. Remember, you’ve got 7 of the 10 largest Uranium producers in the world currently shut-in. 7 of 10. So, you know, it just depends largely on what the Kazakhs do, but I think it’s a little more difficult for Cameco to shut down Cigar Lake and then reopen it in a flash. Immediately, you’re laying off a lot of people. It takes a six months period of time to even recover the severances that you gave you them, usually. So typically, a shutdown of that size does not come back on right away.

State owned enterprises like the joint ventures that the Kazaks have, that’s a bit different. This could be something that could be short-lived, but again, I think that there’s too much going on at the federal level with the United States government.

Matthew Gordon: Well let’s talk about that. Let’s talk about that, Jeff. Let’s talk about that because there’s rumours: working group. What do you know?

Jeff Klenda: What I’ve heard, and this is a rumour, so let me qualify that, is that we could see something out of the working group this week. Now we’ve heard that many times before. I hate even saying anything about that or passing it along, but it does make some sense. And you know, as we were discussing prior, there is right now an incentive and there is, I think, a mindset among a number of the agencies, whether that be commerce, energy or defence or members of Congress, high-ranking members of Congress that are paying very close attention to this, that a more holistic approach needs to be taken. And of course, that’s what the Working Group (NFWG) is all about: that we’re not just looking at the Uranium producers, we’re going to look at the entire fuel cycle. Well, if you’re going to do that, then you have to look at not just the recommendations or the report that the working group is going to release, and what recommendations that might provide or what release that might provide. You also have to be looking at the Russian suspension agreement, which comes up for expiration at the end of this year.

But then in addition to that, there is draft legislation out there by Senators Barrasso out of Wyoming and Heinrich in regard to New Mexico, that will call for substantially lower levels of imports coming in from Russia under the suspension agreement, and they would decline each year after that. So, it makes some sense that you would want to get that report out there if you’re going to look at these things in the aggregate and say, okay, how do we preserve the fuel cycle? What makes sense for the entire industry?

So, would I normally believe that they would come out with the report in the midst of battling the coronavirus and the economy being shut down? No, I would not. Do I think that it’s possible that they would need to so that they could make it part of a larger strategy that would include some of these multiple phases of these stimulus packages so that you can, in effect, preserve the entire fuel cycle and you have to have the recommendations of the working group to know what they’re thinking and how they intend to go about that. That I can, I can see that.

So, whether or not we’ll get anything this week, I don’t know. I will believe it when I see it -we are talking government after all, but I’m happy to hear that we may see something soon. And we were, let’s face it, before the lockdown, we were promised by the Secretary of Energy that it would be out that day or the next day. And unfortunately, that week turned into a week where so many things just deteriorated with respect to you know, the COVID-19 and the economic shutdowns and all that.

Matthew Gordon: Of course, of course. And so, it’s not just utilities that perhaps are going to be nervous about this, you know, we will use 46Mlbs, coming out of the market. It’s the US government seeing what COVID-19 is doing across the board. There’s this huge, I mean, never seen before type of huge stimulus package which the US is implementing, and I guess there’s a lot of hands being held out to get a piece of that, right? So, energy, security: obviously critical them. Do you think that this has been what they needed, the kind of kick up the butt that they needed to kind of get their plans in order?

Jeff Klenda: Well, I think it is. And we were starting to go down the road of talking about their inventories. Look in November, very beginning of November, I attended the NEI conference in Nashville where you had a representative of the Department of Energy there, talking about the current status of domestic inventories in the United States. And they were talking about how 2-years earlier, the US utilities had inventories, in-house inventories of 2.9 years, which is the way they express it. Now at that time, at the beginning of November, it was now at 2.1 years, and you have got to think that over the last 5-months, that has declined a bit. So, you’re probably at no more than two years, you may even be at under two years of inventory for the utilities. So, they have chosen to consume their own inventories rather than go into the market. How long you can continue to do that, I don’t know.

And for the two years prior to that, well the reason why the utilities weren’t in the market was ostensibly because they were awaiting the outcome of Section 232. Well, then of course, Section 232 morphs into the working group. Then you’ve got the Russian suspension agreement that’s coming up for renewal and expiration. And then of course, you’ve got the Iran sanctions, with the Iranians visibly producing fissionable material and coming closer to actually having a nuclear capability with every passing week. So, I think that there’s always going to be a reason for the utilities to take a wait and see approach. But I think that you get to a point where the majority of our nuclear power plants are in regulated markets, meaning that they are overseen by public utility commissions. And those public utility commissions are the ones that grow very uncomfortable with thin inventories. They like to know where the fuel’s coming from for the next couple of years. Frankly, I’m surprised they’ve let them get this low.

Matthew Gordon: Why hasn’t the US government or the Department of Energy talked to you? If there’s something coming out of this week where the working group, you’re one of the two petitioners, right? You’re the guy that kicked this thing off. Why are they not talking to you more? Have they got everything they need from you? Why are they, you know, I’m just intrigued at to that process.

Jeff Klenda: When it first started, back at the very beginning of August, we knew when the reports, they broke the working group up into four separate groups: one was for Uranium, one was for conversion, one was for enrichment, one was for fabrication. And we of course weighed in: we formed what we called our industry core working group that represented every phase of the fuel cycle. So, what we did is, we submitted our own report. We also had the advantage of working with a very good defence contractor at the time that gave us a good idea of what perhaps the Federal Government’s needs would be in terms of nuclear fuel in the 10 years to come. And so, we were able to really tailor our industry core working group recommendations that we submitted to the nuclear fuel working group, the president’s working group.

And we also tailored it to, with respect to the programs that we knew that they had available, whether that’s the Assured Supply Act or the Defence Production Act. And so, we were able to state to them, look, here’s the way that you can support the nuclear fuel cycle, whether it’s the Uranium producers or the converters, and here’s where you can get the money. Here’s where it’s readily available by the president, by presidential decree, it would not require appropriations. We were a bit surprised frankly, when the first thing to come out of the working group was the 10-year appropriation of $150M. Now that’s something that has to survive the appropriations and budgeting process. Whether or not that that comes out the way we want it to, we don’t know. But we’d sure like to see the rest of the report because what we’re hopeful of is that there’s short term relief in there. And what I mean by that are either tax credits that we would have that would level the playing field between us and wind and solar, and even natural gas to a limited extent. So, we would like to see some short-term activity there.

Other things that we know are part of this, some of the short-term recommendations that have been made are that they would buy, for example, our inventories. Well there’s only two companies that have inventories right now ourselves, and Energy Fuels, and buy those inventories at above current market prices. That would provide short-term relief and it would serve to replenish the diminishing government stores in that space that we’ve been living off of. And we’ve been consistently depleting a cold war inventories for some time now. And so it would be a way for them to bring in material instantly, give us short-term relief while we’re watching some of the other recommendations play out.

Matthew Gordon: Okay, well let’s see what happens. Like you say, you did preface it with it is rumours and its government and so forth, but I wanted to understand how you’re feeling now about this. Let’s say this working group doesn’t come out with anything this week and we just go back to life before that rumour. And you’ve done your SBA payroll protection, which like, you know, if you can, you should. You have got this big inventory sitting there. It has a balance sheet value for you. We talked, I think extensively and you’re very robust in explaining the processes which you had put in place to ensure that the company moves forward in the best foot forward basis. I’m interested in, how do you feel now, three weeks after with all of these, all of these things which have happened, in terms of taking pounds out of the market? How do you feel about your ability to position your company as one of the early beneficiaries of this market conditions? I’m not talking about the market as a whole. I want to work out who’s going to win first?

Jeff Klenda: Well, I think that you know, I’ve been stating consistently that this is going to become a very fundamental market. I don’t think that pounds in the ground are going to count for much of anything. That may have been in the last cycle that they did. I think that now we’re going to become a very fundamental marketplace, and the only thing that’s really going to matter is, is who can ramp up production first, what your cost of production is, how quickly can you make deliveries into contracts that you may receive? We have stated for some time, we believe that we can ramp up faster at lower cost and with less dilution damage to our shareholders than any other company out there. I can, at Los Creek, ramp up to, for example, 1Mlbs to 1.25Mlbs a year, and I can do it in a 6 to 8-month period of time.

And that’s because everything’s already there. The header houses are there, the mine unit is directly adjacent to an existing mine unit and everything flows directly into the plant. And I can ramp that up for about USD$15M. In mining terms, that’s nothing. That’s pocket change. And I can follow that on with a second facility – Shirley Basin, which already has an NRC license by the way. I have to build a satellite plant there, but that’s going to cost me about USD$24m -$25M, but that would come online in about 15-months. So, by the time I would get 2-years out, a year and a half to two years out, I’m fully ramped to a to 2Mlbs per year run rate. And I know, we know based on our past production, look, we’ve experienced over 92% recovery rate at Lost Creek; that’s absolutely unheard of. Even in Kazakhstan, nobody gets 92%. But we have accomplished that in our first mine unit at Lost Creek.

So, we know that it is just a beast of a property. We can ramp it up quickly. Shirley Basin is four times the grade and all of this can be done over a 2-year period of time and about a year and a half period of time for right at USD$40M. And if we have the contracts in hand, then I can do that either entirely with debt financing or I can do a combination of debt and equity depending on where our shares are trading and whether or not we feel that it’s advantageous to go ahead and accept some dilution for the money that we need for ramp up. But we’ve already taken the precaution of making sure that we have both lenders at the ready and funds that want to participate in our ramp up and would come in on an equity basis.

So, we feel that we’re very well prepared if nothing happens. Worst case scenario: nothing happens with the Iran sanctions. Nothing happens with the working group. Nothing happens on the Russian suspension agreement. All it means is that I’m in the same position tomorrow as I am today and that we’ve been in for the last 10-years, and eventually we won’t have contracts. Even when Cameco is running out of contracts, we’re at the end of the contracting cycle. We need to begin a new one. But it would simply mean that, you know, I would be left with our runway, which as I stated, takes us through to about the middle of next year. So, we’re in good shape. We’ve got time to work with and we’re confident that something’s going to break and something’s going to come of this.

I’ve kept on 20 people at the plant, so I’ve got my operational staff at the ready. They are there. They will serve as the foundation on which I will expand that employee base and to ramp up production, because we will probably have to ramp up to about 75 guys at the plant from the 20s that are out there now if we ramp up to 2Mlbs for a year you know, look, and that’s no stretch for us. 4-years ago we had nearly 100 employees. Today we’ve got 30, so we’re ready to go. We’ve got our operational staff in position and we’ve kept the best of the best.

Matthew Gordon: Okay. So, thank you for that. Remind people again, what is the price point that you think you’re going to need to get on some of these early contracts? Clearly, obviously, as time goes on, your contracts will be at different terms, different prices. So, what would you aim for?

Jeff Klenda: It’s a good question. And look, when Tim Gitzel was asked that same question – what would it take for him to restart production in the United States? He said he wouldn’t do it. He’d said he would need $60/lbs or better, and I’m pretty comfortable with that number. Obviously, we have demonstrated that we can get by at USD$50/lbs contracts. Remember, since Fukushima occurred, which was 9-years ago, at the middle of last month, we have only raised USD$22M in the market by equity over that 9-year period of time, compared to any of our peers. There are many multiples of the extent to which we’ve had to dilute in the market. So, we are very confident in our abilities.

I can probably get by on USD$50/lbs, $55/lbs contracts, but you have to remember when, now when you’re ramping up from really just a pretty much a Karen maintenance status, which we are at today, you have to factor in capex recovery, exploration and development to replace the pounds that you are producing and you have to build in an acceptable rate of return for your shareholders so I’m more comfortable saying that we really need contracts in the USD$60/lbs to $65/lbs range. And let’s face it, only 5, 6-years ago, the average price that the utilities were paying for pound of Uranium was upwards of USD$56/lbs, $57/lbs.

Matthew Gordon: Okay. Understood. One last question, Jeff, since we last spoke, have you had conversations with your buddy down the road? Your co-petitioner with regards to the mill? Because we saw the announcement and we spoke very quickly with Mark about his foray into rare earths processing, so he is obviously looking to try and capitalise on the mill by putting product through it. How are those conversations, and when would you expect to have them, if you haven’t already done so?

Jeff Klenda: Well, we talk to the guys at Energy Fuels all of the time. For one reason is that we are both interested parties in the Russian suspension agreement. That’s a status that you actually have to file for legally. And so, we are united in our position with the Department of Commerce, with the Russians on the other side of those negotiations. And so, we talk to them on an ongoing basis. You know, we want to make sure that the outcome of the Russian suspension agreement is one that is, is certainly no more harmful to the domestic producers than the existing one has been, which has been in place for 28-years. So, we talk to them on an ongoing basis about that.

Of course, we submitted the, when we were the industry core working group and submitted our recommendations to the President’s working group. We did that jointly with Energy Fuels and others in the fuel cycle. So, virtually everything that we do, we’re doing with the guys at Energy Fuels. We have a great working relationship with them, and they’re not the only ones looking at rare earths. We were looking at rare earths on our property ourselves. It’s nothing we’ve announced. It’s in the very early stages, but rare earths are everywhere. And you know, that’s something that that, that may be a future endeavour of ours as well.

We also have a Gold property that we’re hoping to do work on here within the next month or two. We’ve just been waiting for the weather to change out on the site.

So, we talk to them on an ongoing basis. We work together on all of these things, and as the two remaining producers, you know, we have to work together, we have to stick together.

And you know, they just did a financing back in the first quarter and so I think they’re in good shape for the remainder of the year. We’re in good shape through the remainder of the year and into next year. So, I think that you’ve got the 2 remaining producers in about as good a shape financially as we can be. And if we get the relief on any of the fronts that we’ve been discussing, obviously, you know, my objectives, very simply, are that I would like to have new contracts in place before the end of the year. There it is. That’s what we need. What Energy Fuels needs, and anybody else purporting to be a domestic producer in the United States; we need contracts. We need that new contracting cycle to begin.

Matthew Gordon: Jeff, thank you very much for today. It is exciting times for you guys. I guess this, well, it’s for all the wrong reasons as you say, but it’s exciting times for Uranium CEOs and share prices are creeping up, which is lovely. And we’ll see what happens this week with the working group, and pick up that phone again if you hear anything.

Jeff Klenda: Well, we hope that that both the working group and suspension agreement will result in something over the near term; let’s just call it the next 60 to 90-days. If that’s the case, I’ll be in touch and we’ll do this again. Always a pleasure. Thank you very much, Matt and thanks for giving me the platform to discuss the industry and our story once again.

Matthew Gordon: It’s really, the pleasure is ours, thank you very much, Jeff.

Why not check out a recent uranium article on our platform, or maybe one of our recent interviews with a uranium mining company?

Company Page: http://www.ur-energy.com/

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.

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Ur-Energy (TSX:URE, NYSE:URG) – To know it’s not a surprise (Transcript)

The UR Energy company logo
Ur-Energy
  • TSX: URE, NYSE: URG
  • Shares Outstanding: 160M
  • Share price US$0.62 (27.04.2020)
  • Market Cap: US$99M

We recently interviewed Jeff Klenda, President & CEO of Uranium producer, Ur-Energy (TSX: URE, NYSE: URG).

Klenda gives us his take on the US Dept of Energy’s announcement yesterday. The release of the document Resolving America’s Competitive Nuclear Energy Advantage. The market had a mixed view with retail investors expecting more detail about how the uranium miners would benefit from an overhaul of the nuclear energy complex. Klenda is more circumspect and details what he believes the impact will be.

We Discuss:

  1. US Nuclear Working Group Announcement: interpretation and Market’s Reaction
  2. Important Report Yet Little Specifics: What This Means for Uranium Miners
  3. Devil’s in the Detail: Ur-Energy’s Future Involvement
  4. Concerns of Geopolitical Security: Agreements with Russia
  5. Spot Price: How Will the Announcement Affect it?
  6. Next Piece of News: When and What Should be Expected

CLICK HERE to watch the full interview

Matthew Gordon: Hey Jeff, how are you, Sir?

Jeff Klenda: Doing great, Matt. Good to be with you again. This time you get a different view of my house.

Matthew Gordon: I like it. I like it.

Jeff Klenda: You will know every square foot if we do enough interviews here.

Matthew Gordon: It seems like yesterday, it seems like yesterday and it almost was, but the world of Uranium is fast moving at the moment. There’s a lot going on. We had an announcement today by Secretary Brouillette about what the US government intends to do with the nuclear fuel working group and its plans to move America’s nuclear cycle forward. So, what’s your reading of what you heard today?

Jeff Klenda: Okay. So far, let me say that I think that we like everything that we see in the report. And as I suggested to you, the last time that we spoke, I had confidence that we would actually see this report this week because we knew that they were taking a very much a holistic approach. That was actually quite an understatement when I made that and when you think about actually how all-encompassing this working group report is covering every nook and cranny in the nuclear fuel cycle, it is not just the holistic approach, it is a massive undertaking from a geopolitical standpoint. And they are endeavouring here to build out a nuclear industrial base that will compete for many decades to come. And it’s coming, of course, none too soon.

Matthew Gordon: Well, they made some pretty big plays today in this document. Look, I think the market has reacted negatively to this, so I want to understand from you why you’re pleased with it, okay? The big things I saw were attacking the Russians and the Chinese nuclear complex head-on. There are big plans afoot, right? And that is easier said than done, right. So, I thought, you know, to congratulate them on that, but ultimately, I do want to bring this back to what does it mean for you? But let’s keep it at sort of helicopter level for now. Do you think the US government is just grandstanding in an election year or are they serious about this?

Jeff Klenda: No, I think they’re serious about this, and look, it’s not grandstanding in an election year, and the reason I am absolutely convinced of that is that we have been saying this for 2.5 years now. We said that as often and as strongly as we could possibly state it through the entire 232 process, that we were losing our seat at the table. We were ceding the nuclear fuel cycle and we were ceding that seat at the table. And our influence, not only geopolitically when it comes to all things nuclear, but as the primary deterrent, we acting as the primary deterrence and nuclear proliferation, we are ceding all that up to the Russians and the Chinese. So, it gives me a great deal of confidence that they are addressing both of those two countries specifically in this report and talking about very specific means by which they intend to address it.

So, I think that they’re very serious and the devil is of course in the details, and I think unfortunately the investors, we saw big movement up this morning followed by big movement down on massive volume. And I think it was because it was short of detail. So this is a very important first step and, and frankly, you know, we would have loved it if it would have come out when it was first delivered to the White House in November, and had it been delivered at that time, I think that we’d be much further along in this process but unfortunately impeachment and COVID-19 came in between.

Matthew Gordon: Okay, well, let’s not get stuck in the kind of macro component of this because this is, you know, hundreds of billions of dollars of investment I think that the US government is talking about and they will need to get down to the detail. But let’s talk about what it means for Uranium miners. Okay. Yourself along with Energy Fuels were the petitioners of the Section 2.32. You put yourself at the front of the queue with your hand out and saying, right, so what are they going to do for us? So, what was your reading on what are they going to do for US miners?

Jeff Klenda: Well, I like it because one of the things that the working group before stated emphatically right at the outset of the report was, is that they had to start at the beginning; in other words, a ground up approach. And what they meant by that and what they stated was, it has to begin with the Uranium miners followed by conversion, followed by enrichment in successive following years. And so we know that they’re going to be addressing that immediately. Now, one of the things I think that frustrated investors was they said that they pointed out, they pointed to the line item of USD$150M that would go into rebuilding inventories in the United States and that that would begin in 2020. Well then it begs the question: when in 2020, is that immediately? Is that three months from now? Is that six months from now? Does that mean that they may come in and buy our inventories, which would give us, obviously, immediate relief and we have spoken to them about that very topic.

So, we end this morning in a question and answer period. The Energy Secretary Brouillette did emphasise that that he would be inclusive of other players to the extent that he felt that they were actually capable of production. So, I think that there is a desire there to rebuild the miners. They know that they’re losing critical infrastructure. That is something that we’ve pointed out as strongly as we could over the last several months. But in addition to that, more importantly, we are losing critical human capital. We are losing the expertise. And if we don’t preserve that, you could give me a year to start up, if I can’t find the guys that know what they’re doing, I’ve got to train them from the ground up. That is a difficult undertaking. And then you’re doubling your start-up time.

Matthew Gordon: Okay. So previously they’ve talked about this USD$150M a year for 10-years. Okay. This report doesn’t talk about dollars. It doesn’t talk about numbers, it doesn’t talk about timing. The only thing that it kind of gives us a clue about is we will directly purchase Uranium by establishing a Uranium reserve? What do you think that means?

Jeff Klenda: That means is that they also don’t want in the report to state that from a military standpoint and from the Department of Defence, that they have low enriched Uranium that will last them to 2041 and that is used of course in Tridium and so that goes directly into nuclear weaponry, and that they have highly enriched Uranium, which would fuel the nuclear fleet. And they made it clear that the Uranium reserve that they were building would not only be used for those purposes, and, and by the way, it’s important to emphasise that in order to be used for military purposes, it all must be sourced in the States the Uranium must be mined here, the conversion, the enrichment, the fabrication, all done in the United States where it doesn’t qualify as unobligated, in other words, it can be used for military purposes.

So, they’ve made it very clear that they wanted to be certain that they were building an inventory that was also a fallback position in case there was a disruption of delivery of supply to the United States utilities so that it could be used for commercial backup as well. And so, it’s covering a lot: 15Mlbs to 19Mlbs over a 10-year period is just the beginning because it doesn’t come near close to covering those types of requirements.

Matthew Gordon: And they have been having discussions in the past where people were mooting that the US government would buy ore, Uranium ore, unprocessed. Do you think that’s realistic from what you’ve seen today?

Jeff Klenda: Well, they won’t be, ore – you mean unprocessed as in conventional? No, but will they buy U308 that we drum out at Lost Creek? Absolutely. That is exactly the inventory that they are looking to build, in addition to conversion by the way. And so they have to have both. And I think that you know, we are prepared of course to ramp up at Lost Creek. We have stated this, that for as little as USD$15M, I can be at a 1M lb/a run rate in as little as six to eight months. So we stand ready, we’ve preserved our operational staff and this is exactly what the federal government will be looking at when they determine who they should hand contracts to. There’s two of us, as you’ve pointed out: ourselves and Energy Fuels. We’ve spearheaded this thing for more than two years now, two and a half years. I like to think that that puts us in a front running position, and I think that look, the people at the Department of Defence and Energy, they want pounds, they don’t want promises and we can provide them pounds.

Matthew Gordon: Okay. So looking forward, there’s a process to deliver all of the detail. Are you going to be involved in that process? How are you feeding into that process? Because I think the thing that people want to understand, and you banged this number out a lot, Tim Gitzel has banged this number out a lot; you guys need USD$60 p/lb. Does the US government Department of Energy, Minister Brouillette, does he understand that?

Jeff Klenda: I think he does. And by the way, we’ve had these conversations before he was Secretary and while he was with the Department of Energy, so actually we’ve had these conversations directly with him, and the thing that I think needs to be emphasised is that, is that a price that we absolutely need or would if we were at a full on run rate and fully maximizing our economies of scale? Well, no. But when you’re on care and maintenance and you have to spend cap bucks to ramp up, you have to explore and develop to replace resources that you’re now reproducing and you have to provide a reasonable rate of return to your shareholders, then yes, you have to have that type of pricing. I think that the Secretary of Energy is fully aware of that, and to answer your question, will we be engaged in that process?

The fact is, is that yes, in the days ahead, I have conference calls with agencies: Commerce, Energy. Defence doesn’t take calls from us anymore. Once they feel that they know everything, they don’t want to talk to you anymore. But when they’re gathering data; get in here, we need to talk to you. So, by the way, you can also check your sense of humour at the door if they have none. So, but they’re a good group of guys. They understand what needs to be done here. And I think that’s well reflected in the report. So that is one of the things that does excite me. And I think that they did a great job of expressing, and I’m talking about defence here now, and energy, expressing their very serious concerns here because they are losing a geopolitical race that they just can’t afford to lose.

Matthew Gordon: Well, let’s talk about that. The Russian suspension agreement: there’s two trains of thoughts – one, cut them off, two, gradually reduce the amount, you know, go from 20,15, 10, 5, 0. Where are you?

Jeff Klenda: In the last week there have been a number of developments on that front. First of all, let’s start off by saying that this is a program that has been in place that came about as a result of the trade action in 1992, so it’s been in place for 28-years. It sunsets, it expires at the end of this year on December 31st. We believe that it is absolutely in the Russian’s best interests that they want to continue to have the kind of access that they have to our marketplace, which is right now currently 20% of domestic consumption, then they need to renew the agreement. As far as the first option, in terms of just cutting it off, there are certainly people who would advocate for that, including high-powered members of Congress. Politically, let’s be honest, it’s untenable. It’s not going to happen.

What’s going to happen is that we are going to see a renewed RSA agreement, but as you’ve seen in the working group report, it is very straightforward in calling for a cap. Not only do they believe that the 20% is something, maybe we can continue on with that. They’d like to see that dependency reduced over time and a cap put in place. In addition to that, it should be noted that Senators Barrasso out of Wyoming, Republican, and Democratic Senator Heinrich out of New Mexico released a draft of a piece of legislation that they are preparing to submit to Congress that would reduce the Russian imports into our country to 15% and have them steadily decline after that.

So, I think what you’re going to find here is because of the working group being so emphatic on this point, and because of Senators Barrasso and Heinrich’s legislation that will soon be pending, I think that this will give the Russians a strong incentive to work out an arrangement that is suitable to them and do it sooner rather than later.

Where we stand on that and where we come into play on that is that if you’re a Uranium producer or a converter, you have to remember what the Russians want to do is that they want to provide enrichment to the United States utilities. That’s where they make their money. But what happens is, is that there are component feed stocks that go into that in the form of you U308 and UF6. So, what we are saying is that, great guys, let’s renew an agreement here. Let’s get one on the books and let’s extend it for another 10-years, 20-years if you’d like, but we need to make sure that we are taken into consideration in terms of those component parts. So if there is feedstock that goes into that 20% that you’re going to provide of us consumption, then we need to make sure that our interests are provided for and I think the Department of Commerce is very sympathetic to that and realises that there needs to be a US feedstock component on both the U308 level – us -yellow cake, and at the conversion level, Converdyn.

So, I think that the Russian suspension agreement is very much a part of the working group here. And as we talked about in our last conversation, it’s part of that holistic approach, but it’s a very vital component.

Matthew Gordon: Are you advocating a bifurcated market in terms of pricing there?

Jeff Klenda: That could very well be the case, and I’m not going to, I won’t say it now, if we had the 2.32 and the quota had gone into effect, we know that would have resulted in a bifurcated market. Here we are seeing Uranium prices rise. They’re currently at USD$33/lbs and that’s up from USD$24/lbs, just a what? 3-weeks ago, four weeks ago. So, we’ve had a 30%, 35% increase in the price of Uranium. Will it rise enough that it will do a lot of good for guys outside the United States? Some of the foreign explorers, some of the larger scale explorers? That I don’t know. Whether or not there’ll be a bifurcated market because remember, the action that’s being taken here is government action and that is not dependent on the commercial marketplace or the domestic or the global quotes for U308 or UF6, or even enrichment.

Matthew Gordon: Okay. I guess you guys are going to need to get into the detail and I guess us guys in the market are going to have to wait for that detail. Last question, because I know you’ve been on a lot of calls and you’re going to be on a lot of calls today. The last question: we’ve seen the price of Uranium, the spot price of Uranium recover over the past few weeks and that’s been a case of some big, caused by Cigar Lake, KazAtomProm, COVID-19 affecting production all around the world, that’s well understood. Now, do you think today’s announcement or lack of detail in this announcement is going to affect that growth in the spot price?

Jeff Klenda: You know what? It’s hard to say and I’m anxious to see the close, just as you are on Uranium spot price today. But the fact is, is that I don’t think that it has immediate impact. What has far more impact is the supply destruction that you described. With that supply destruction, 46M lbs has come out of the market in the last 30 days, and that’s 35% of primary production. So, you know,  everybody will benefit from, you know, all boats will rise with that rising tide if that spot price keeps rising. And the last time that spot was at USD$40, our stock was a USD$2.40.  So yes, no one wants a higher spot price more than we do.

 I think that we are finally getting to a point, and there’s even word that Olympic Dam may shut down in Australia. So, you would have eight of the 10 largest primary producers of Uranium on the planet shut in. The utilities have got to be taking note of that. We have seen more RFPs come from them, seen four since the beginning of the year that have come to me directly. I’ve answered all of them. I think we are going to see many more. They’ve been consuming their own inventories. I think they, and their public utility commissions in particular are realising, that’s unsustainable. You can’t do that. You can’t, I mean, you’re burning your furniture for firewood. They’re getting now to the point where they’re down below two years of reserves in the way they measure it. That’s a pretty dicey position for a utility to allow themselves to be placed in.

So, I can’t answer that whether or not we’ll continue to see a sustained higher price. I do believe that with the supply that’s come out of the market, I think that’s good for probably USD$35/lbs or better. And I think that if Olympic Dam were to come off it or if the Kazakhs were to come out and actually extend their shutdown, which of course as more than a 40% producer, primary production, that will be probably more of a determinant. But the supply demand fundamentals are absolutely reasserting themselves in the marketplace.

But our concern for now is that all of the things taking place on the domestic basis with the federal government, and we stand ready to ramp up and deliver into those requirements. My big objective, and I can assure you the objective of our good friends over at Energy Fuels is to secure contracts before the end of the year, make sure that we that our long-suffering shareholders are provided for in that we give them and show them a viable company for the next 10-years. Not just on a personal level or on a corporate level, but this has to happen from a national security standpoint.  So, for the working group to emphasise that as strongly as they did in their report, I was very gratified to see that.

And as I said, as much as we’ve been saying all these things and really pounding the table over the last couple of years, we weren’t certain anybody was listening. But to see it now all in writing is very gratifying. And I do think that it’s a serious effort and we will be working closely with all relevant parties, whether that’s members of Congress or the agencies engaged in the working group in the White House itself, which by the way, has asked us for information on a couple of occasions leading up to this. So, we provide them with information when asked and we will continue to do so, but we will be front and centre in this process.

Matthew Gordon: Okay. Jeff, thank you for that. What I’m hearing is, believe in the supply-demand fundamentals and as disappointing as today’s announcement was in terms of detail, it suggests a big move by the US government to get back into the nuclear fuel cycle globally.

Jeff Klenda: Well again, I would restate what I said from the outset: they state at the end the conclusion of this document that they are doing nothing less than building a Uranium industrial base, very similar to our defence industrial base. That’s a massive undertaking. We’ve let it deteriorate, but we are starting a hundred-hard dash 10 yards in arrears. We have the technology, we have to rebuild the technology. But the big issue here is that you’ve got the Russians and the Chinese going out there and building hundred-year relationships with countries when they build out nuclear reactors for them. So, we cannot afford to let them enter into these types of relationships uncontested without putting our own hat in the ring and making sure that we have a seat at the nuclear table.

Who decides that? I mean, let’s face it, we are the primary deterrent to nuclear proliferation. That’s always been our role. We’ve got to continue in that role. It’s absolutely imperative not only to us as a country but to the free world, so that’s a charge we don’t take lightly.

Matthew Gordon: Okay, and sorry, I always say this: one last question, one last question, the last question is what is the next announcement going to be from the US government and when?

Jeff Klenda: I think what happens next is that they will specify what happens and what they meant by, this begins in 2020. And we will, by the way, on our conference calls that we have over the next couple of days, you can believe, you better believe that that is going to be one of the primary topics of conversation guys. What do you mean by 2020 will you buy my, we have inventories, we buy my inventories right now because that extends my runway. Then you can take a little longer to work on some of these things. It doesn’t bother me because I’m safe and secure. We’ve got good runway anyway as our partner company Energy Fuels so I think we both feel fairly secure in that and I think we are in better position than the other players out there in the marketplace. But I think what comes next is that we have to find out what is meant by 2020? When we can expect that? And I’d like an answer to that, frankly in the next 30 days, if we could get that, I think that we are golden and you know, that’s exactly what we are hoping for. And then beyond that, we need clarification on when they would be prepared to enter into contracts.

And there’s one more thing that I would emphasise to your listeners and that is that there has been put forward the suggestion that this is such an imperative that this $150M over a 10-year period of time is not something that we should wait to play out through the budget process because we are not going to see any conclusion to that until the end of the year. But rather it should be brought forward and made part of the stimulus packages that are in play right now. We will certainly be pressing for that.

Matthew Gordon: Jeff, you are a star. I look forward to some updates from you next week no doubt, the way things are moving.

Jeff Klenda: I always appreciate the interview. Thanks so much.

Why not check out a recent uranium article on our platform, or maybe one of our recent interviews with a uranium mining company?

Company Page: http://www.ur-energy.com/

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.

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Uranium Conversion & Enrichment and its Impact on Uranium Equities (Transcript)

A photo of Bannerman Resources CEO, Brandon Munro.
Bannerman Resources
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (20.04.2020)
  • Market Cap: A$43M

Crux Investor recently interviewed Brandon Munro. He’s an Association Committee Member and contributor for the WNA Bi-Annual Nuclear Fuel Report, Market insider and CEO of Bannerman Resources (ASX: BMN).

We have interviewed Munro on a number of occasions, and he has always given us great access to his expertise in the uranium space.

The relatively technical topic of uranium conversion and enrichment explained simply in terms of process, buying and users. It partly explains the delay in price recovery in the market.

We discuss:

  1. COVID-19 Affecting Uranium Supply: The Impact and Measures Taken in Australia, Namibia and Other Countries
  2. Kazatomprom: What’s Happening in Kazakhstan?
  3. Conversion and Enrichment: An In-depth Look
  4. UF6 Supply: How Much Have We Got Left?
  5. State of EUP and Its Indications
  6. LTC Pricing: What’s the Process that Leads to Publication?
  7. Green Lights for Investors: What Signs to be Aware of When Investing in Uranium and Why are They Difficult to Figure Out?

CLICK HERE to watch the full interview.

Matthew Gordon: Good morning Brandon. How are you sir? 

Brandon Munro: I’m pretty well, all things considered, Matt, how are you? 

Matthew Gordon: Not bad. Not bad. Yes. Well we spoke last week, but a lot of things have changed in only a week. I think Uranium’s quite a hot topic at the moment. I think a lot of generalists are looking at it. A lot of press coverage and a lot of conflicting information. So we’re checking in with you and get your view. So we spoke last week, we talked about closure, the temporary closure, or standing down of the workforce at Cigar Lake by Cameco. I think there’s a lot of talk about the impact elsewhere in the world with other Uranium producers, can you give us a little bit of insight and maybe start with your home territory Australia? What has the impact been there? 

Brandon Munro: Yes. So for, for everyone in your audience, Australia is the third largest producer of Uranium, predominantly from the giant Olympic Dam, which is a Copper then Gold mine. So Uranium is a little bit of a by-product there, but because of the pure sheer scale of that operation, it still pushes a large number of pounds into the sector.

We haven’t seen disruption there yet. But what we are starting to see is border closures. So initially soft border closures by South Australia where that project is located, also Northern territory where the Ranger mine is located. And now in Western Australia we’ve seen a hard border closure, so as of next Sunday even fly-in fly-out workers from Western Australia’s mining industry can’t just simply come in and out, even with all of the mitigations that the mines had in place with charter flights, et cetera, et cetera.  So, I think that’s to a large extent setting the standard and I would expect it’s likely that South Australia would follow suit.

So, we are seeing a level of disruption already. Olympic Dam relies on a large component of fly-in fly-out workers, no signs yet of a closure, but as I said in the article, I think COVID-19 is going to nibble at the edges of efficiency for all mines, including Olympic Dam. So, I’d expect them to be below production guidance there. And the question is, is that 5% or 10% below production guidance, or will they have to close down for a period of time? And we’re not seeing the indications of that yet.

Matthew Gordon: Okay, well that is interesting. So, what is happening with regards to COVID-19 elsewhere? You know, because most countries have identified key workers, and some countries, like if you look at Canada, the provinces have different views of what key workers are. Some of those are in mining personnel and in other provinces they’re not. What’s the story in Australia? Because you used the phrase, ‘nibble away at production’, and I get that it’s a by-product as such. I do want to talk about that specifically, but surely this is going to be a major disruption to BHP‘s operations?

Brandon Munro:  That’s important to understand, because if we’re going to try and game BHP’s decisions at Olympic Dam, what they are and aren’t prepared to do, what their risk tolerance is, you need to understand their main game plan, which is iron ore mining in Western Australia. Western Australia sees it very much as an essential industry, and closing its borders potentially for 6-months or more, I think government’s strategy there is to use the mining sector to power out of this, and manage to maintain revenues, particularly royalty revenues to the state. So, for both BHP and Rio Tinto, it is very important to keep those iron ore mines going.

There’s a good prospect that Vale will stumble in Brazil and that will lead to support in iron ore prices at a time when China will be implementing stimulus measures, which one would presume, with factories turning on and so forth, to maintain the demand for iron ore. So, for Western Australia it’s very important. South Australia is quite similar, and my take on it is that BHP at Olympic Dam and Rio Tinto at Ranger Mine in the Northern Territory will be very reluctant to do anything there that could endanger the broader iron ore operations and their continued stability in this crisis. 

Matthew Gordon: Okay, well, let me understand that, let me understand the practicalities of that. So, they want to encourage people to continue mining there and so it’s important for revenues, but with staff flying in and out, obviously that will cause problems, or their lack of ability to fly in and out, it will cause problems. So, what you do? Do you keep your staff onsite and say, right, you’re not allowed to leave? Or do you have to rely on local staff, or is it testing? I mean we have had CEOs come on talk about, Oh, we do, we test people’s temperature before they walk in. But obviously I think that’s fairly debunked as a control method to understand whether someone’s a carrier or not. 

Brandon Munro: So they’re doing all of the above pretty much. What we are seeing is a scramble to relocate fly-in, fly-out workers and their families into Western Australia. And the hard border closure is from Sunday, and they’ll need to go into 14-day quarantine, but then they’ll be inside the state. They’re obviously doing mitigations on site to the extent that they can. The advantage that we’ve got in Western Australia is we still haven’t seen any level of community transmission. So, transmissivity here has all been from overseas travel, cruise ships and direct contact with people in that situation. So, it’s reasonable to expect that once the borders are closed and you see continued evidence of that lack of community transmission, the mitigations on site will be reasonable.

So, then that brings us to South Australia and they don’t have quite the same sort of emphasis on a large, pure based iron ore industry. Olympic Dam is important to South Australia. There’s no question about that. So there will be pressure to maintain Olympic Dam, but again, going to BHP’s risk profile, if they have an outbreak at Olympic Dam, it’s hard to see them just isolating the particular crew that had contact, and carrying on as business as usual, you’d see some level of disruption there. 

Matthew Gordon: Okay. That makes sense to me, and I think for viewers watching this, it’s trying to understand how different countries are approaching this and the seriousness to which they’re obviously attributing this is really important.

Can we talk about that by-product, which is Uranium? That’s why we’re here. We want to understand, do you think there is going to be a major disruption to the Uranium supply from Australia as a result of this? Or do you think, to use your phrase, the margins may be nibbled away at, but it should be able to continue to supply into the market? 

Brandon Munro: I think it will be annualised disruption from Australian production in the order of 5% to 10%.

Matthew Gordon: Okay.

Brandon Munro: So, not enormous. They are pounds that count though, because Olympic Dam does not manage their marketing of Uranium, they sell into the spot market, and quite often from a lot of criticism from other producers that they just simply, effectively dumped them into the spot market. So any reduction in Olympic Dam’s output will be disproportionately helpful to the market rather than another producer like Cameco who are very, very careful as to how they release their pounds and they’re all into long-term contracts anyway. But I’m working on, say 4-weeks total production, or 8% disruption annualised for 2020 as a realistic scenario from Olympic Dam. 

Matthew Gordon: Well let’s come on to that in a minute because I do want to talk to you about maybe you know, as an aggregate what that number could look like. So we’ll come back to that. So let’s talk about your second home, which is Namibia, and there’s reports that have come out this week and last about the Namibian government’s actions as it affects miners. So what have you seen? What have you heard? Is that going to be cause for concern? 

Brandon Munro: So firstly, the reports that came out from Bloomberg, Reuters, etc, they were then reproduced quite widely. It took a, let’s say a slightly simplistic view of the situation, and I don’t blame them for that. There was quite a lot of confusion on the ground. I spent a fair proportion of this week on Chamber of Mines, conference calls and all that type of thing. And that was one of the issues that some of the other miners were facing in other commodities: the perception and what it was doing to share prices.

What the government asked the mines to do was to operate on minimal operations and or care and maintenance. And after a flurry of clarifications, it seems to be that means minimal operations to maintain the viability of the mine so that when the initial 21-day shutdown period comes to an end, they can then, we hope, power out of the situation and continue to provide revenue to the economy. 

Again, if you look at the backdrop in Namibia, mining is incredibly important to Namibia and it’s very difficult to see where else Namibia will be able to get near term revenue flows to fund their medical facilities and fund everything else that they’re going to need to do both in the short and the medium term as they come out. So I think what we’ll see is a very big push from the mining sector and certain segments of government to find a way where they can legitimately trade off the economic benefits from mining with the health risks of further transmissivity and so on.

Now, if we bring that back to Uranium, what’s interesting though is both of the Uranium operations giants: Rossing and Husab -they’re owned by state owned enterprises, Chinese state-owned enterprises. So CGN in the case of who Husab and CNNC in the case of Rossing. So, first of all, they’re not as acutely financially driven as other mining operations so there isn’t the question of bankruptcy. And secondly, they will be far more likely to do what government asks them to do, the Namibian government asks them to do. I would expect to see perhaps a more cautious approach from both of those operations. And I will say in all certainty we will see a level of disruption there: if it’s not partial closure, if it’s not reduction in mining and running a processing plant, it’ll be difficulty getting diesel across the border from South Africa, et cetera, et cetera. There’s a whole range of things that are making it difficult to mine productively in Namibia at the moment. 

Matthew Gordon: Right. And again, using the Australian analogy, it will slightly nibble away at their ability to work effectively, efficiently. But we’re starting to build up a whole bunch of numbers here. So, but again, before we do that, let’s talk about some of the other big players; the Kazakhs. KazAtomProm is, you know, obviously the listed, well, 10% listed in London here, so there is a bit more clarity, but generally I think that the perception, certainly from outsiders, you may have a different view, is that it’s hard to know what they’re up to. Obviously, they produced over their quota at the end of last year. You know, that sent a few puzzled looks their way. Let’s be polite about how people received that. So, what’s your take on what’s going on with the KazAtomProm production? 

Brandon Munro: The first thing to understand is that in situ recovery is a little bit more resilient to this type of disruption than say an underground mine. You don’t have workers going deep underground in close confines to each other, et cetera, et cetera. And so, it’s not appropriate to apply the Southern African experience to Kazakhstan where they’ve had to entirely closed down their underground mines and other mining operations. And it’s also got some capacity to operate on minimal staff as well because once the well configurations have been put in place to a degree, it’s a case of flicking a switch and it just continues to pump. So, they’ve got that inbuilt resiliency.

What we’re seeing on the ground in Kazakhstan, it’s not easy to understand right now. They’ve got very low levels of infection: it’s in the four hundreds and, they might just be really lucky because they’re a sparsely populated country and so forth, or it might be another explanation. They do share a border with China that has been relatively porous and it could be through simply not doing enough testing that they don’t fully understand the extent of the transmissions.

Regardless of that, they’ve taken some very strong early steps, much like Russia has, to contain it either pre-emptively or reactively. And so Almaty is in shutdown, Nursaltan is in shutdown, and various measures throughout the regions are being implemented. So you can expect a nibble at the edges approach in Kazakhstan, I think. They might find that it’s difficult to expand wells, for example. It’s difficult to do some of the sustaining capex, but that’s not going to be an immediate effect. That’s more going to be a grinding effect as the year wears on. So I think that’s very much one to watch and wait.

The stock exchange listing has been helpful because KazAtomProm did issue a guidance warning, and they pointed to the fact that they still maintain eight months of inventory so we wouldn’t see necessarily an immediate market effect from this nibbling at the edges. But of course, if any of those major operations have to close then that’s going to have an effect on sentiment. 

Matthew Gordon: Okay, and this is going to feel like a bit of a segue, but I think, I promise everyone that’s coming back to being able to understand the supply side of this equation, and which is, I want to talk about conversion and enrichment. Okay. So why don’t we kick off with definitions? I think that’s always quite good. And then we’re going to talk about what that market has looked like over the last, say 10-years, and certainly five years. So if you don’t mind, give us a description of what each of those is.

Brandon Munro: So definitions: conversion is a service that is applied to U3O8, or yellow cake, or Uranium concentrate, to take it from a yellow cake powder into a refined gas, UF6 – Uranium hexafluoride. And the reason why you need it in that format is the enrichment process. And again, enrichment is a service that’s applied to the UF6 which is that the centrifugal enrichment technology takes that gas, spins it at an incredible speed, two times the speed of sound. And because of that, it slowly shakes out the heavier isotopes of Uranium towards the edges so the lighter isotopes of Uranium can be sucked from the middle of the centrifuge.

So the reason why you need to do that, and we’re going into a simple physics here, is Uranium is predominantly two isotopes: Uranium 238 and Uranium 235. Only Uranium 235 is fissile, in other words, it can be utilised as a chain reaction to release energy as it is in a controlled way in a nuclear power plant.

Uranium 235 is only present in a concentration of 0.7% in natural Uranium. And for a conventional nuclear power plant, it needs to be upgraded to somewhere between 3% and 5% depending on that technology. And that’s what the enrichment process does.

So what has happened in the last 10-years in particular, if we were to go back 10-years, we had a situation where those services of conversion and enrichment were applied to Uranium owned by utilities; so the utility would contract with a major producer, let’s say Rossing in Namibia, and they would own the U308, they then take it to the converter, pay the converter for the service of conversion, and then the utility would own the UF6. Then when they’re ready to, they’d take that UF6, deliver it to the enricher, pay the enrichment facility for the service of enrichment, and then they would be left with a certain quantity of the EUP, which is enriched Uranium product that’s appropriate to the type of technology that they need. So for particular reactor, they might need it to 3.7% and that’s what they would ask enrichment to provide.

Now, the way that that would work is the service of enrichment is called a SWU – separative work unit, not that anyone really needs to understand that for now. And SWU prices fluctuate in the same way that Uranium prices fluctuate, and the utility would try and optimise how much SWU they add to how much Uranium to produce the product. And they do that by comparing the Uranium price with the SWU price. Because if you’ve got very expensive Uranium and very cheap SWU, then what you’re going to do is you’re going to keep providing that SWU in those centrifuges until you’ve squeezed every last bit of Uranium out of it. Conversely, if the SWU is very expensive and the Uranium’s quite cheap, you’re going to give it more of a light touch with the SWU because you’d rather buy more Uranium and push more Uranium through and extract less efficiency from that Uranium. And what you end up with is this a trade-off that determines the tails assay, the optimum tails assay -I’ll come back to why this is important. Once you know a tails essay, then you know how much of this EUP enriched Uranium product you’re going to have as a utility at the end of it, and you can also then use that to calculate how much more Uranium you need to buy.

That was 10 years ago. Then we had Fukushima. Now, what Fukushima did is that in a matter of months, knocked out about 10% of the world’s demand for nuclear power, and therefore nuclear fuel. Conversion facilities can flex up a little bit and down, but an enrichment facility can’t flex down because these centrifuges; imagine an oversized scuba tank that’s spinning at these rates. I’ve been told that if you allowed it to stop and you had a speck of dust in it when you restarted it, they spin at such a rate that that speck of dust would cause it to lose balance and fire like a rocket through your entire plant. So you simply can’t turn them off until you’re ready to shut them down and say goodbye to that particular centrifuge. So they just had to run them. They had no choice.

So going back to the example that I gave or the explanation that I gave about optimum tails assays, the utilities were still saying, right, we’ve done our calculation and you quoted us on SWU and we know we bought our Uranium for that much and therefore we want an optimum tail assay of this. And that’s what the enricher would provide. But it had 10% or more of this excess capacity so they said, well, with what we’ve got left, we’ll just leave it in for a bit longer, and even though it’s really low grade Uranium by that point where we’re paying the electricity and the sunk capital cost to keep running the centrifuges anyway so we’ll leave it in there and we’ll squeeze every last little bit of useful Uranium that the technology allows and we get to keep that. And what they did is they kept that extra enriched Uranium product and they used that to try and offset some of their own costs. And that is the concept of underfeeding that today is responsible for almost 20 million pounds of Uranium supply into the marketplace. And so that’s where Uranium conversion and enrichment fit in.

And then one last comment about the enrichment side of things and underfeeding, we are seeing underfeeding decrease relatively quickly because number one, we’ve got increasing demand for nuclear fuel. There’s now more reactors operating today and a greater nuclear power output than there was before Fukushima. So we’ve closed up that demand gap. And also the enrichment facilities have been under a lot of economic stress since those days. And as they start to decommission these centrifuges in their cascades, they’re not replacing them. So there’s been some natural attrition in their centrifuge cascades that’s led to reduced capacity. So those two factors result in a stark reduction in underfeeding by 2025 and almost elimination of underfeeding by 2035, at a time when nuclear power is still growing at a couple of percent compound average growth rate. 

Matthew Gordon: Thanks for that. That’s a wonderful breakdown. So let’s just stay with the supply side of things just a little bit longer if you can, and we have talked in the past, and on other conversations we’ve had with regards to, you know, how much UF6 that was in the market, how much EUP was actually in their market, and because it’s a fairly small market but fairly opaque market, I think there’s been, there was a severe underestimation about the impact of both of those components in the marketplace. And it’s perhaps the reason why some of these estimates have been long drawn out or long mis-estimated, where are they now? UF6 today, are supplies dwindling? Are they nearing the bottom? How long can we expect to see this thing carry on?

Brandon Munro: Great question, and maybe I’ll go back a little bit in time to contextualize my answer, and the other effect apart from the creation of underfeeding after Fukushima, the other effect is that the excess capacity applied in conversion as well and we saw utilities that had already paid for Uranium and conversion fulfilling those obligations and producing UF6 that they didn’t really need, particularly Japanese utilities. So we saw the build-up of inventory in UF6 as well as EUP, the enriched Uranium product. So previously, where conversion was simply a service and enrichment was simply a service applied to the Uranium owned by the utilities, now we started to see fresh Uranium, inventory Uranium, free and inventory UF6 as well as the untreated EUP. And as you just explained, that’s created a great degree of opaqueness in understanding inventories. And it’s also enabled utilities until very recently to be able to arbitrage between those three forms of fuel. So if you didn’t like the Uranium price, you could go and buy UF6, or if you didn’t like the UF6 price, you could buy EUP or Uranium. So to answer your question, what we’ve seen in UF6 is a dramatic reduction in the available and mobile inventory. So the inventory of UF6 that isn’t already owned by people who need it is very, very low. And the reason for that is in November 2017, Converdyn, a large provider of conversion services, put onto Care & Maintenance, the Metropolis works facility, which is the only facility in the US, and very cleverly and very stealthily, they mopped up pretty much all of the available UF6 in the market at that point in time. And they did that because they had contracts of conversion. So by buying the UF6 in advance, they could, instead of providing the service of conversion, they could just slowly deliver that UF6 to their counter parties. 

Now we fast forward by a couple of years, 2.5-years, and we’ve got a situation where that UF6 has been absorbed. There’s been a deficit in conversion since that facility was closed and as a result that inventory’s been soaked up in UF6. We’ve seen a sky-rocketing conversion price. So the price of that service has gone from roughly USD$4 to $20 a kilogram; a tremendous rise, which has obviously had an effect on the UF6 price, but also reminded utilities that we are in an awfully volatile market and exactly the same thing can happen to Uranium. And the knock-on effects are already becoming clear. It hasn’t hit Uranium yet, but it has hit enrichment. So the SWU price has gone from low thirties to about USD$50 per SWU, so a good healthy increase in more recent times, that again, is just putting pressure on the utilities decision making when it comes to Uranium. 

Matthew Gordon: So then you said that, you know, Converdyn went about the process of soaking up as much as they could, but who were the other players who would have been doing the same thing? Because again, I would say for investors who are looking at the Uranium space, whether they’re old hands or looking at it new as having been generalists, or involved in other commodities, the key to this is the supply side. It seems to be. The story in the market seems to be, okay, MacArthur closed down a few years ago, then we’ve got Cigar Lake recently, we’re going to have some effect on supply because of Covid-19 to some of the other major suppliers, except maybe with the exception of Kazakhstan. With supply restrictions comes opportunity because it’s going to force, potentially, force utility buyers to try to fix a price, and get a price today, and obviously at USD$27.50 or whatever it is today, there or thereabouts, that doesn’t work for most people, except maybe the Kazakhs. So what is your view on this opaque market? Do you think there’s more UF6 that we don’t know about? Do the utility buyers know about more UF6 or EUP that we don’t? Because that knowledge seems to be pretty scarce on the ground. I don’t know anyone who’s been able to assimilate that information in one place and call it right. Certainly not the people we’ve spoken to in the last year. What’s your take?

Brandon Munro: There’s no question that there is still UF6 out there, but it’s not held in the mobile forms.

Matthew Gordon: Right. And how do you know that?

Brandon Munro: I have a fair idea of what Converdyns position is through knowing the people personally. With Orano, they’re a bit more of a closed shop. They’re a much bigger organisation, but not long ago, last year what they did is they had their own problems in conversion when they turned off an older conversion facility, replaced it with a new one and they had almost a three month supply stoppage there, and so the understanding within the industry is they had to scramble at that point because they’d been operating without significant inventories. They had right sized their conversion facility for their own needs inside France. So that also put a bit of pressure and contributed to that incline on the conversion price. 

And in fact, what we’ve seen is the opposite of what we’ve described. So Uranium Participation Corp, they held both U308 and UF6. They sold half of their UF6 holdings to Converdyn at the time when Converdyn was mopping up excess supply. And then they sold the other half more recently where they basically did a trade of UF6 for U308; so cleverly increased their U308 leverage by taking advantage of that conversion price spike.

So we’re seeing rather a disgorging of mobile inventory. And to turn to your question about how much we know about it, US and EU utilities do need to report on this and it is reported. So come May, we will understand how much inventory the US utilities have got as a whole. There’ll be global numbers released, and the form in which that’s held, and we’ll also understand that later in the year for the EU. Now, that doesn’t help answer the question about China, but for everyone who is looking at this sector, I think the easiest way to think about China is they are building their own fuel cycle. So they aim to have enough conversion for their own requirements and they aim to have enough enrichment for their own requirements. So you can kind of treat them as like a closed cell for everything except U308 because they produce very little U308 domestically. And even with their big mines in Namibia, they still won’t have enough U308 within a couple of years. But the fuel cycle, they’ve got themselves.

So once you’ve taken the US and the EU and the Chinese utilities out of that, you’ve got a few in North Asia, a couple of other places around the world, South Africa and elsewhere, but they aren’t particularly material. 

Matthew Gordon: Okay, thanks a lot for that. But tell me little bit more about EUP; I mean what’s the state of play there? Because it’s obviously a big part of this.

Brandon Munro: So what we’ve seen in the last couple of years is first of all, that EUP that’s produced from underfeeding is partly produced in Russia and partly produced in the rest of the world. The rest of the world is almost entirely releasing that now on long-term contracts, which is a healthier situation for the market. In Russia, the word is, and this is a difficult opaque part of a difficult and opaque market because it’s Russia, and a lot of it is state secrets, et cetera, et cetera. But what the belief is in the industry, and according to some of my colleagues in Russia, is that they aren’t releasing any of that material externally. So Rosatom as I understand it, does not sell any of their underfeeding generated EUP or tails re-enriched EUP into the broader market. They need all of that to complement their domestic mining of Uranium for their own requirements.

And that makes an awful lot of sense because as you know, and as your listeners might know, Russia and Rosatom has been extremely successful with a build, own, operate supply type model with its nuclear power plants, and they’re going to need all of that EUP, UF6, U308 that they can find. So the effective inventory of EUP from underfeeding is a lot more contained and rational than it was a couple of years ago. And what we’ve also seen is utilities proffering to absorb EUP over U308 where it is mobile. So where some of that EUP is held by sources that can sell it to each other, the utilities have gone for that.

Now the reason they’ve done that is they’ve, as Section 232 has sort of ground on for the last couple of years, the utilities have wanted to buy time, they’ve, they’ve wanted to defer contracting their Uranium until they can really see how this thing plays out. And now that we’re in a COVID-19 world, I think that will probably continue to provide some inertia to them entering into long-term contracts in the very short term.

Now the way that they can do that, and if I go back to my little explanation about conversion and enrichment; in the old days when the utility would buy the U308, it would buy it about two years minimum before it needed to put it into fuel bundles that would then sit ready for loading into their reactor, and that would allow enough time to transport it from the mine to the conversion facility. There’s only a handful of them in the world. And then from the conversion facility, get it converted into canisters, transferred to the enrichment facility, and there’s only a handful of them around the world and then off to the fabricator and then back to the nuclear power plant and then sitting there ready to go for the next reload. Now, that’s about two years. The thing is if they buy UF6, they can delay that purchasing decision by six months. And if they buy EUP, they can delay it by a bit more. So that’s been the short-term method that the utilities are by and large using so that they can kick the can down the road, see more clarity, particularly on the geopolitical side of things in the US before they get forced to commit to long-term contracts. Good to understand, but also important to monitor because if we see that type of inventory absorption in EUP that we’ve seen in conversion, that’s going to create an instant headache for any of those utilities who are a little bit on the light side when it comes to their inventory and they’ll have to very quickly adapt by securing UF6. But remember, they can’t get any of that because there isn’t any of that around, then they’ll quickly have to adapt and buy U308.

So I see EUP as a very important leading indicator for when utilities will need to get on their bikes and start securing Uranium. And I see SWU prices as a good indicator of the availability of EUP. And so as we see SWU prices continue to rise, any large volatility in SWU prices is probably a pretty good clue that what we suspect about EUP and there not being much inventory sloshing around is, is in fact the case. 

Matthew Gordon: Okay. So the magic question is, if they’re get indicators, what are they indicating to you in terms of timing?

Brandon Munro: In EUP it’s indicating a tightening because as I say, we’ve seen SWU go back to USD$50/lbs in conversion. We’ve seen conversion go 400% to 500% up, which is confirming what we pretty much know that there there’s very little, if any, available mobile inventory in UF6 form.

Matthew Gordon: Right. Okay. As I said, thanks for that. I think that is actually quite important for people who are new to this to understand the way that the utilities were stringing this out, as it were, or able to string it out, as it were. A question for you and it’s been sent in by one of the members, which is, could you touch upon the process that leads to the publication of LTC pricing? Miners must have an interest. So tell us a bit about that. 

Brandon Munro: Yes, it’s a really good question because we aren’t seeing much long-term contract and I’ve got a bit of a bug bear when it comes to the way it’s being reported at the moment. So let me explain two basic concepts, if you can indulge me a little bit here. So the first one is, although there’s seem to be a spot price, it isn’t a spot price. It’s not an exchange price, it’s a reported price, and the same is the case for the long-term contract price. You’ve got two now, three different price reporters and they rely on the strength of their relationships throughout the industry and the motivations of the players in the industry to report to them the deal that they’ve done. And then what they do is they make it anonymous and they, if there’s enough volume, they aggregate it and blind it and then report it as what’s happened. So you could see a single deal being reported and that would be that week’s long-term contract price.

And the other thing I want to explain is how long-term contract works with its timeframe. And so in very basic terms, and we can come back to this maybe next time I’m on, if there’s interest from your listeners, but basically a long-term contract; typically they’ll go out for a request for proposal, they’ll get those proposals back, they’ll have a look at them, they might negotiate a little bit with their preferred responders then they will enter into contracts or negotiations. Then they will sign a deal. And typically, it’s only a couple of months later that that deal will filter out into the reporters who report it, if at all. There are many instances where somebody, either counter parties very keen to report or leak it, and there are instances where a counter party is actually insistent on maintaining the confidentiality of that, and as you can imagine, there’s a whole lot of reasons that might drive that.

So the reporting is done on that basis. It is relatively unreliable, particularly where we aren’t seeing a lot of volume. The reporters and you know, I know them, they do their best to understand if they’re being manipulated and to remove those sorts of things. So that’s why sometimes you see a discrepancy between trade tech numbers and UXC numbers, because one or the other has said no; I am either being manipulated or I’m not getting the full story, or you know, they’re telling me that side but not that side. So there is a little bit of judgment used.

My bugbear at the moment is we’re seeing long-term contracts reported at say USD$32. A long-term contract comes in many different forms. It’s not a standardised agreement like we see in a true spot markets or other industries. It’s a negotiated agreement that in its simplest form, it’s a fixed price that is either escalated or predetermined for 2022, 2023, 2024, and you can just go to the schedule of the contract and you can see this is how much we’re going to pay. But more often than not, it’s a blend. So it might say, right, we are 60% fixed according to this price that is then escalated, but the other 40% we’re going to say it’s spot plus 10% at the time of delivery subject to a collar and subject to a cuff. 

Matthew Gordon: Sounds like structured finance.

Brandon Munro: Yes, yes. And if you listen to, you know, if you hear Tim Gitzel talking about his contract book, they talk about it as a whole portfolio, but he’ll talk about how much of it is fixed price escalated, how much of it is market sensitive, et cetera, et cetera. They never talk about the collars and the cuffs, but they’ve built into their contract portfolio where they are exposed to markets, they obviously have the cuff and in return they provide a collar.

So my bugbear is that the contracts that have been done at the moment, many of them are simply spot reference contracts. So they are, we’ll provide you in 2023 but you’re going to pay the spot price, or the spot price minus five, or the spot price plus 10% or whatever it is. And Tim Gitzel said that they’re the only contracts that they’re writing unless they see a four handle in front of a fixed-term escalated. The contract, the price reporters, what are they going to do with the contract except take an assumed spot price at that point in the future and report that as a price. So they’ll take today’s spot price. They escalate it from now to 2023 and they say, well, the long-term contract for 2023 deliveries is therefore USD$32. It does not give a realistic picture of what utilities would need to pay when we see true price discovery because of the volume of contracts. 

Matthew Gordon: But why can’t someone like a TradeTech or a CE calculate these things? Like you’re involved with the WNA, right? Which is the World Nuclear Association, and you have helped them write a number of papers and the nuclear fuel report, which came out September last year, or was published in September last year, the utilities buy those. They buy the WNA report. They buy from the trade players. They must be able to estimate what’s going on in terms of production in the world. Obviously, the last few weeks are an exception, but typically like last year for instance, they will know exactly who is going to produce what in the market and they’re going to make a call. These are smart guys who doing the maths. I mean quite simply that they’re doing the maths on this thing and the price hadn’t moved. It hasn’t moved for years. And obviously, last week, this week, we’ve seen a little uptick and we’ve seen a little V shape in some Uranium companies’ share price. But that was the last two weeks, I’m more concerned that again, the opaque nature of this market means that it’s difficult for people outside to read it and make a call.

The utility buyers, and I guess to some degree, the fund managers should be able to have a better view of the market, but it’s hard for us to read. I’m an investor.  I want to be able to work out, and I guess everyone watching this wants to be able to work out what are the signals? What should I be looking for? What’s real, what’s not? Why is it so difficult? 

Brandon Munro: So, the utilities in very simple terms fall into two camps: the first camp, the larger ones who do their own analysis, who have got, you know, analyst in there who will crunch the numbers and form a view. And then the smaller ones, and this might be a power company that’s a diversified power company. With nuclear, they’ve got two or three reactors in their portfolio: things like solar and wind, and getting subsidies for those power sources are far more important. And if there’s a, like I’ve had conversations with these types where they say, well, technically we’ve got one quarter of an analyst, but we haven’t had much time of his lately because he’s crunching the numbers on a new vehicle fleet for our employees or something like that. So what they tend to do is they tend to make sure that they stay in step with the crowd.  Because as a fuel buyer, you’re not paid to take chances and you’re not paid to make big calls and take risks, particularly in an organisation like that. You are paid to make sure that you do your job, which means stay in step. And what that really means is follow the advice of the consultants; your UXCs and your TradeTechs of this world, and what they’re saying about it.

 So if we go to the bigger ones who do their analysis, some of them, I will have a closed door conversation with and they’ll say, yes, absolutely we’re preparing for the scenario of USD$70 a pound. And we saw what happened last time and it can go up and they, that’s part of their risk mitigation. In the meantime, they don’t have to pay that so they won’t. So they’ll nibble at the edges and they’ll pick up what they can on spot and they will max out on their exposure to say Uranium 1, the Russian producer, and they’ll max out on their exposure to say Kazatomprom, and then they’ll just wait and see, knowing that they’re working in that scenario. Their job is not particularly easy because they’re not miners. The bigger guys do have advisors, they need to make a call on what is going to be the marginal cost of production and how much ahead of the crowd do they need to be so that they aren’t forced to be paying that marginal cost of production. And depending on their view on demand, they then need to make a decision of how many new projects are going to come in and what will their marginal costs of production be when they’ve got  quite a number of promoters of say less advanced Uranium projects telling the world at large that they can produce on some very realistic numbers, very optimistic numbers on some very optimistic timeframes.

It’s hard enough as a savvy, hardened, sort of bruised and scarred investor to make calls on who’s bullshitting you and who’s not, let alone a utility who’s in the business of producing power, not mining and doesn’t have the benefit of listening to 10 company promoters a day sort of file through their office and pick the lies from the truths. So that’s some of the difficulties that they face.

Matthew Gordon: Okay, but likewise, retail investors, family offices, investors who aren’t as exposed to this all day, every day. I mean, there’s different levels of sophistication in terms of the people watching the show. Some are very, very smart; much smarter than me. They live for the Uranium space, and there are other generalists who are looking at this thing going, Oh boy, that’s way too confused to get involved with, I’m just looking for, give me one signal to look for, three things that need to happen before I move my money or place a bet on a Uranium equity. Right.

So the big question in all of this, so you have done a fantastic job describing the complexity technically and why utilities have able to string this out. You have done a great job describing what some of the main producers, the state of play is, and certainly within the countries and the companies themselves. But when you bring all that together, when you pull that information together, what is it telling you with regards to, still on supply here, what is it telling you in regards to supply? Because is this the white swan event that people think it is? Is this why there’s been an uptick in price in the last week? Or do you think the utility players have still got another card up their sleeves? 

Brandon Munro: Yes, so I mean we’ve been really in the weeds so far talking about some difficult concepts and I think that’s because you’ve got a passion for educating your subscribers and your club, but we shouldn’t lose sight of the fact that Uranium is, it’s a really fascinating paradigm, because on the one hand, if you’re trying to pick timing in the Uranium sector, you need to be in the weeds and you really need to be following the insights and really understanding it. If you can be just a little bit flexible, or preferably a bit more flexible on timing, it becomes really simple. It becomes really simple because the spot price at USD$27, and the contract price of anything less than USD$50 means that there is a large, large proportion of existing and future supply that cannot make money in this sector. And you can’t turn nuclear power plants off simply because you can’t get the Uranium. There is no substitute – they are 11% of the world’s electricity. They’re vital to the go-forward for China, for Russia, for India, for the Middle East. It is a crucial, absolutely vital part of the world’s industrial commerce. And if you can’t make mines money, they won’t pull the stuff out of the ground. So when you get down to that level, it is the simplest, most assured bet that you’ve ever seen in a commodities market. But is it going to happen next week, in three weeks-time, in three months-time or mid next year? That’s where the finesse and the complexity comes in. 

Matthew Gordon: But your investment thesis comes to play here, which is this isn’t going to make you money tomorrow. It may not make you money in six months, but if you’re prepared to sit and wait on it, it’s a nice bet, based on the macro, which will see you return, but don’t get too excited about anything happening anytime soon. I mean, that is worth saying at the end of all of this. 

Brandon Munro: Yes, well, absolutely.  I’ll give you an example. So, when I came into Bannerman, the Uranium was USD$33 and the share price was USD$0.03c. We had really difficult times back in 2016. I mean, trying to even get someone to take a call on Uranium was just about impossible. But by the end of the year we needed to raise, and we did manage to raise it that USD$0.03c, that was in November. By February, the next year, our share price had touched USD$0.10c and then came down again. And because of what we’re seeing at the moment, we’re even below that original 3 cents for the first time in a very long time in our company’s history. And so there are volatility moments inside of that overall investment strategy. And that’s a real opportunity. But if you were to say, right, what sector in the world could I buy today? And forget about it, not look at my screen, not do anything, not follow the news for a couple of years and know that I’ll be waking up with a smile on my face, it has to be Uranium. It has to be Uranium, and it’s only got better because of COVID-19, as much as it’s a virus that’s causing mayhem and enormous amount of tragedy for people, but for someone who is in a position to either commence or increase their exposure to Uranium equities, it’s an astonishingly good opportunity.

All of these equities are on their knees at the moment. The demand side is where it’s always been and the supply side, it’s at risk as we’ve been talking about. The only thing you have just got to be careful about, and I’m sure you’ll be talking to your subscribers a bit about this, is making sure that the equity that you’re looking at is robust enough to come out the other side and preferably come out in better shape, not just limping along. 

Matthew Gordon:  And I think that is a discussion for another day as part of the education process to try and understand what good looks like and what not so good looks like. Our red flags and green lights series, educational series. So yes, we would love to talk to you about that and get your views on some of those moving parts. But Brandon, thanks so much for today. I mean that’s immense in terms of, as you say, getting into the weeds, understanding the detail, the technology behind those components, it certainly helped me learn something today, which I always enjoy; see it can happen. It can happen. 

Brandon Munro: And I was laughing because I wondered that there was anything more for you to learn in Uranium, Matt, you’ve picked it up so quickly.

Matthew Gordon: Yes, it’s been fascinating. I think there’s got to be a Netflix show; this is the next Tiger King, isn’t it? 

Brandon Munro: Oh right. Yes. Okay. I’m up for it. Yes. I think I need to be behind the camera if we’re doing it on Netflix though.

Matthew Gordon: True, true. And I’ll need a mullet, apparently. Right, Brandon, thanks so much. I know it’s a Friday night there in Perth, go and enjoy what’s left of the day there, maybe a glass of wine and the kids. And we will catch up with you very soon. Thank you very much for doing this, especially for, and exclusively for the Crux Club members. We hope to see you on here again real soon. And if they have questions, we will direct them towards you. 

Brandon Munro: Great. Thanks for having me on, Matt.

If you are a uranium market spectator, feel free to check out some of the recent uranium articles on our platform as well as one of our most recent interviews with a uranium mining company.

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.

A photo of Bannerman Resources CEO, Brandon Munro.

Global Atomic (TSE: GLO) – Two can make a wish come true, yeah (Transcript)

The Global Atomic Corporation company logo.
Global Atomic Corporation
  • TSX: GLO
  • Shares Outstanding: 145M
  • Share price CA$0.51 (17.04.2020)
  • Market Cap: CA$75M

Interview with Stephen Roman, Chairman, President & CEO of Global Atomic Corp. (TSE: GLO) .

Roman calls us to update about the announcement of their PEA results. They plan to mine a higher grade flank zone in Phase 1 at their Dasa project in Niger, which is what this PEA relates to. The results are impressive for many reasons.

Firstly the economics an AISC of just $18.39. That is world-class. And a cash cost of just $16.72. Also world-class. The number which caught our eye though was the steady-state production of 4.4Mlbs. Global Atomic becomes a meaningful second-tier player at that level. At $35 per pound, the NPV8 is $211M with an IRR of 26.6%. However if the price of uranium goes to $50 (where most producers and developers expect and need it to go), the NPV8 leaps to $485M with a 46.3% IRR.

That in itself is a good company. But remember this is Phase 1 of the much larger, albeit lower grade, Dasa ore body.

The key to this is the speed at which Roman believes they can get into production. He says by end of 2022. What that means is they can get in to supplying U308 in to this contract cycle and start relationships with utilities for long-term contracts while other are still seeking financing. We discuss the winners and losers and the realities of the time lines involved.

We also discuss their Turkish zinc JV which gives them a 40-50 year annuity stream of cash. This could be used to finance the capex requirement for Dasa.

Interesting times ahead. Let’s see if this experienced uranium team can deliver. We fully expect it to quietly go about its business. This one is leading from the front.

We Discussed:

  1. Flight of the Swans: Market Situation, Interpretation of Announcements, Opinions on Utilities and Price
  2. Supply and the Market: How Will the Juniors Survive? What Qualities Will They Have
  3. Befesa Silvermet Zinc Project: An Update. Zinc Payback Timeline Discussed
  4. PEA Announcement: Reviewing Results
  5. Business Model: Why Get into Production Early?
  6. Strength of the PEA and Getting Permitted
  7. Raising Money and Limiting Dilution: Telling a Compelling Story, Raising Money and Limiting Dilution
  8. Timeline of Events: Getting into Production, PFS, DFS, etc.
  9. Market’s Reaction to Global Atomic and PEA Announcement

CLICK HERE to watch the full interview.

Matthew Gordon: Stephen, how are you, sir?

Stephen Roman:  I’m fine. Matthew, how are you doing?

Matthew Gordon: Not bad. Locked up at home.

Stephen Roman: I’m in snowy Toronto. We just had a blizzard here this morning. I understand the weather is a little better in London?

Matthew Gordon: You are kidding? It’s sunny. It’s all sunny here. It’s 20-degrees, which, I mean, I don’t want to talk to an Australian right now; they’ve been telling me it’s 35 degrees, you know. No one needs to have that conversation. But anyway, so you’re holed up safely at home. Keeping busy. You’ve got a press release out today about your PEA, and I do want to talk to you about that in a minute, but first I need to get your take on what is going on in the marketplace. The last 2 or 3-weeks have been a bit crazy. You’ve had  Cigar Lake shutting out for a little while. You have got the Kazakhs doing the same thing for potentially three months. You’ve got Rossing shutting down. You’ve got Husab production affected, Australia still seems to be marching on. What’s your take on all of this?

Stephen Roman: It’s a strange world out there, Matthew, with this virus floating around. And of course you know, a lot of these mines like Rossing, low-grade, high-cost, Cigar Lake similarly. I mean, all of these mines, I guess because of COVID-19, have now shut down. That’s taken a huge chunk out of the Uranium supply chain. I would, you know, if I was a utility, I think I’d be getting nervous about now on where they’re going to start getting supplies because their long-term contracts are coming due in the next year or two, and they’ve got to be out there looking at who can fulfil the next 10-year supply stream for them. You know, it’s obviously moved the Uranium price up quite significantly here over the last couple of weeks. And you know, some of these mines are going to take a bit of time to restart. So, you know, I think the Uranium side is getting a bit of a boost here and hopefully it’s not short-lived. I think we’d like to see it moving ahead. You know, to where it should be.

Matthew Gordon: Well, you’ve got a part of the audience who are saying that this is the ‘white swan’, this is the catalyst for change. You can’t remove that amount of pounds out of the marketplace without it obviously affecting the demand side. You’ve obviously been there, done it before; you have built Uranium, mined, got into production; you know what it’s about. I’m intrigued as to what you think the utility guys are actually thinking right now because the other thing going on in the background is obviously that the gas prices are being affected by the war with Russia. The war between Russia and the Saudis with regards to pricing and output. Are you having conversations with any utility guys at the moment? Have you got a, can you give us a sense of how they’re going to be judging this situation?

Stephen Roman: You know what? The last interaction I had with a number of utilities was at a Uranium conference in Nashville in the Fall, and this was obviously before Covid-19. And the general consensus at the Nashville conference was that they have to start getting back into the market. So that’s a very positive sign to me that they are definitely thinking about it, and I think with all these closures now that’s going to push them over the edge that they’re going to have to start scrambling to find supply. So you know, I think it’s good for the whole sector.

Matthew Gordon: So do you therefore think the price is, we’ve heard a bit of, you know, sort of 2-weeks ago, we were at USD$27, we are at just over USD$30, nearly.

Stephen Roman: Well, you know, I think Cameco and Kazatomprom: the two big players, they would probably like to keep the price below USD$40 per lb to keep many others from getting into the market. So, you know, I think if it moves into the USD$35 to USD$40 range, you’re going to see a bit more supply coming in. But probably not before that.

Matthew Gordon: Well, I do want to talk about your PEA because there’s some quite attractive numbers in there which you must be pleased about, but we’ll talk about that in a second. To that point, how does supply come into the market? If you’ve got a bunch of young pretenders as it were, you know, juniors who have got an asset, not necessarily a great asset, but, and not necessarily the cash to be able to do too much about it, but it is Uranium, so, you know, people are getting excited about what that could mean. Do you think that all these, all Uranium juniors currently in the marketplace are going to survive because of this price recovery, which people are expecting? Or do you think that it’s going to move in small increments, i.e. the lowest cost producers who can create a margin for themselves whilst the price recovers are going to be able to step up to the plate first? And what indeed does that mean for the people who need USD$50, USD$60, USD70 ?

Stephen Roman: That’s quite a question.

Matthew Gordon: It’s a long one, right?  Are there going to be winners and losers is what I’m asking?

Stephen Roman: There’s some tremendous Uranium projects in the Athabasca basin. They have an issue with permitting timelines and capex so I don’t know how much money would be available to build a project that potentially is not going to be permitted for 10-years. So, you know, I think what people have to look at right now is who can actually come into production in the next two to three years that could actually start supplying the utilities when their contracts run out in two years. The big high-grade projects won’t be there. There’s some smaller producers, some institute leaching in the United States, you know, that’s 1Moz, 2Moz a year – it’s small scale. So, you know, I think aside from Cameco turning on production at USD$35 to USD$40 per lb, Kazatomprom doing the same thing, the new projects, there’s going to be very few that actually make it in this cycle.

Matthew Gordon: Okay. So in this cycle, see what intrigues me and what, we talk a lot, right? What intrigues me about you guys, and I think from what I have read, people appreciate your business model, the business model being that you’ve also got a Zinc revenue stream component with your Turkish JV Befesa. Now, that’s going to help because it means you’re not going to dilute shareholders continually. There’s that ongoing stream income stream there. Now you’ve, you have made a couple of statements recently with regards to that, because obviously Zinc prices have been hit a little bit. So you’re putting out a timeline there somewhat, can you just tell us about what’s going on in Turkey first of all? Are they still working? Are they still able to operate?

Stephen Roman: Yes, good question. Turkey is still working. Of course the government has imposed some protocols that everyone is following. And you know, where we are in Iskandar, it seems to be a virus-free at this point in time, but we are using very specific protocols to keep people away from each other. The plant of course is brand new, so it was just commissioned in Q4 last year, 2019. So, you know, it’s a highly automated plant, so you actually don’t need a lot of people there and you know, so it’s still running at capacity currently.

Matthew Gordon: Okay. So, but in terms of the statements you’ve made, you said that there was a sort of 12-month payback period, but with obviously where Zinc prices have been, you know, a little bit lower than they have been. That’s going to take a little bit longer. Can you give us some idea of the timeline there?

Stephen Roman: Yes. So when we started the plan the Zinc price was between USD$1 and USD$1.10. As a result of the current market conditions, it went down to USD$0.85c per lb, so what we’re telling people now, rather than have a one-year payback of our capital, we’re talking about two years at this point, So you know, the dividend stream is coming from there. We get a monthly management fees and sales commissions that effectively cover a lot of our G&A in the company. But the big dividends that are typically awarded once a year after the AGM they would start later than we expected.

Matthew Gordon: But that has got a long annuity stream of cash for you?

Stephen Roman: Well, I mean, the plant will be running for the next 50 years I would suspect, it’s a brand new plant, so.

Matthew Gordon: I’ll put that down as a yes. Yes. Okay. Right. So that’s the sort of interesting part of the business model, but let’s come to maybe your PEA, because I think that will allow me to understand better where you’re positioning yourself in the market because there’s some clues there. You’re talking about getting in earlier into the cycle than some. So why don’t you give us the big numbers on the PEA? Tell us what you announced this morning.

Stephen Roman: Well, this morning we announced a phase one mining project at our flagship DASA project in Niger. This is a 250Mlbs deposit. And over 2019, we did a lot of trade off studies on how it should be mined; open pit, underground combination start-up underground and open pit or a vice versa. At any rate, what we’ve been able to achieve here, and with money actually there was provided from our Turkish operation, we did a big round of drilling and we defined an area we call the flank zone, which is a high-grade section of the deposit that comes close to surface. And so what we’ve laid out here in this PEA is a ramp access underground mine that is basically mining above 5,300 PPM, or 0.5% Uranium. And if you notice in the press release that the majority of the pounds, there are about 30Mlbs of the 48Mlbs we’ll be mining out of this flank zone is running at over 1% Uranium. So the average grade is about 5,300 PPM, which you know, for an African Uranium project is outstanding. It puts us more in the Athabasca style deposit. And that obviously then doesn’t require a lot of tons to make a lot of pounds. So we’ve engineered a thousand ton a day operation that’s going to produce about 4.4Mlbs a year of yellow cake that has an All in Sustaining Cost, of course, below USD$20 per lb. Our cash costs are about USD$16 per lb.

Matthew Gordon: I mean, that’s the remarkable number there; being able to produce at less than USD$20.  I know you have said it before, but I’m not sure the market believed it and now you’re saying that that is achievable. And, I mean the other thing that stands out is the, I mean we knew this was a big Resource, you know, the available pounds here in terms of, I presume, phase II is huge, but this project on its own at USD$35 is showing, you’re indicating here what? 26% IRR at USD$35?

Stephen Roman: Yes, that’s after tax.

Matthew Gordon: So yes, that’s a nice number – you must be happy. Were you expecting it?

Stephen Roman: Well, you know, I think when we started working on the model of the flank zone as an underground high-grade operation, the numbers started coming in because the resource there is so good and it leads you into the lower sections of the deposit where there is also a lot of good high-grade material. But of course it needs to have more drilling, which you would do during your mining process. As it says in the press release, we’ll use this phase I to actually produce Uranium quickly, but also to develop the rest of the deposit.

Matthew Gordon: Okay. And the thing that interests me is, again, the business model: there’s some people who say, well, do it all in one go because there’s a much bigger resource and you know, therefore it’s going to be much more attractive to big players, et cetera. So why are you doing it this way? Why get into production early? I assume to hit this cycle? What you were saying five minutes ago?

Stephen Roman: Well, Matthew, you know, at the end of the day we’re a mining company; we like building mines. I think with Uranium, you know, and obviously you can mine this at a much larger scale. It’s going to take more capex, like we came out with our 2018 PEA that showed a USD$300M capex doing twice as much production on a much larger scale. But, you know, the grade was lower, the capex was higher, and for a junior mining company it was just too much. The other thing to consider in the Uranium business is you don’t want to come out there with an 8 to 10Mlbs a year project because where are you going to sell it? So what do we want to do? And we think the sweet spot is, you know, between 4 and 5Mlbs is just exactly where we came in. It’s a marketable amount of Uranium, you know two or three utilities could take that up every year and you don’t have a huge issue moving your product.

Matthew Gordon: Okay. Because I’m looking at 4M to 5Mlbs a year compared to like the US producers and I have spoken to both of them; they’re talking about a 1M to 2Mlbs. So you are a meaningful, could be a meaningful producer within a short timeframe to fit into a cycle where you think utilities are going to be needing to, you know, definitely going to be needing to fill up their inventory levels because where else is it going to come from? So I just wanted to know, have you had conversations with utilities? Do you know that this plan works better than getting out there and producing a much bigger project, which may be more attractive to Chinese investors for instance, because we’ve heard all models here. So why, what was the data that you had to say, now let’s go small, let’s do it now and let’s hit this cycle. And, you know, be, I guess what you’re trying to say is at least we will be in control.

Stephen Roman: That’s right. This is something that we can do with our capability and our financial horsepower. If we’re talking about projects that are into the hundreds of Millions you know, it’s something that we would not be able to do. So I think just like many mines in days of old, they would start with a smaller scale operation and, and grow the business out of cashflow. We can do the same thing. I mean there’s nothing stopping us from producing more if the demand is there.

Matthew Gordon: Okay. But let me talk to you a bit before we get too excited, because it’s quite easy in the current climate to get excited about Uranium. You know, the two yellow commodities are getting quite exciting at the moment. So you have to excuse me. But you’ve done a PEA, it’s just a PEA, right? It’s not a PFS.

Stephen Roman: Well actually, we’ve done the PEA to a PFS level. So this will form the core of our technical material that’s going to be submitted to the government for our mining permit. So what we’re planning on doing now is we’re finishing our hydrogeological work around the mine as well as our environmental impact statement. These are necessary to achieve our mining permit. So really the final bits, which would be some more geotechnical drilling and final engineering, we can do that subsequent to getting our mining permit. So the idea is to submit all of this material now as a final technical report to the government by the summer, by June, July with our application for a mining permit.

Matthew Gordon: And what does that allow you to do? Because I am going to ask in a second about money, because you’re going to need to raise money at some point, but what does having the mining permit allow you to do? Why are you focused on that?

Stephen Roman: I think it’s a huge catalyst for our operation because once you have your mining permit, you are unrestricted; so you can raise money and you know, there will be much more interest from utilities, potentially off-take agreements and various other financial instruments that we could use. With the Turkish operation, we could even have a sort of a bond issue that you know, basic coupon that’s supported for instance, by our Turkish cashflow. So we want to keep dilution to a minimum. We probably will raise a little bit of money, but timing-wise, for me, the best time to do that would be subsequent to achieving our mining permit.

Matthew Gordon: Right. Okay. And how much are we talking about here?

Stephen Roman: Oh, between CAD$5M and CAD$10M.

Matthew Gordon: Okay.

Stephen Roman: Yes, that’s not a huge amount. And you know, if the Uranium price continues to move, and the share prices move up, people will finally recognise this project because, you know, funny enough, a lot of people have not heard about Global Atomic, and I see a Uranium publications coming out. I just got one this morning talking about every company, and global Atomics, is not, there. Why aren’t people seeing this project? To me, we just have to pound the pavement a little bit and get people aware of it because it is very significant. I mean, we signed a deal with Orano mining, the French government in July of 2017. And the reason they did that is because they want to have an assured supply and augment their feed source for their Somair operation north of us. They did extensive due diligence on this project, and we weren’t as far ahead as we are now. So you know, this I think, is a very significant project in the Uranium space, but particularly in Niger where they derive most of their revenue stream from Uranium, and they view this project as like the next phase for development in the country.

Matthew Gordon: Okay. So if I may finish off, can you give me that timeline, you talked about getting into production this cycle, but what are you aiming for? Because okay, you’ve done a PEA to PFS standard, but you have still got to get a PFS. You’ve got to do your Feasibility, you’ve got to do the numbers on the PFS. What’s that timeline look like?

Stephen Roman: Oh, that should be finished during 2021. So that, you know, I mean it would be nice to actually start moving dirt towards the end of 2021 or early 2022.

Matthew Gordon: Okay. And by moving dirt, you literally mean, because you’re going underground here, you’re moving dirt, transporting it up the road for processing. Is that what’s happening?

Stephen Roman: Well actually, what I’m meaning is that you would start prepping this site and developing your portal, moving a camp in there to actually start developing the whole infrastructure. So we’re right on the power grid. We’ve got proposals in from solar hybrid suppliers that’ll sell us power under a power purchase agreement to keep our power costs low. But you know, Orano gets their power from a coal-fired plant down the road, which happens to be right in line with us.

Matthew Gordon: Okay. So the question is, when do you think you start taking U3O8 and selling it? When are you producing?

Stephen Roman: Oh, I would say you know, if all goes well and COVID-19 doesn’t keep everybody shut down for the next year, that by 2022, we’d be selling Uranium.

Matthew Gordon: Fantastic. You might. So, okay. So things are going great guns, you’re out there pounding the streets, telling the story. What’s the feedback been so far?

Stephen Roman: Well, aside from people being quite amazed by the project and the numbers coming out of it you know, a lot of people need to learn about it. So this has sort of woken up a few people.

Matthew Gordon: Yes, I think so. Well, it’s exciting times. It’s exciting times, Stephen. I think a lot of the generalists seem to be waking up to Uranium again, which is fantastic news. They’ll need educating, because again, it’s, you know, it’s been quite, it’s taken us a long time to learn about the ins and outs of it. It’s quite an opaque market. But I think it’s nice to sort of see them at least asking the questions again. Well, best of luck to you. Thanks very much for giving us an update on the PEA and the announcement. Stay in touch and let us know how things are progressing.

Stephen Roman:: We will definitely stay in touch and you’ll be getting our news as it’s coming out.

Matthew Gordon: Good, man, sir. Thank you very much.

Company Page: https://www.globalatomiccorp.com/

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 Global Atomic Corporation company logo.

Bannerman Resources (ASX: BMN) – CEO Brandon Munro Explores The Uranium Space

A photo of Bannerman Resources CEO, Brandon Munro.
Bannerman Resources
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.03 (08.04.2020)
  • Market Cap: A$36M

Crux Investor recently interviewed Brandon Munro. He’s the CEO of Australian uranium junior, Bannerman Resources (ASX: BMN).

We have interviewed Munro on a number of occasions, and he has always given us great access to his expertise in the uranium space.

We also recently interviewed the CEO of Peninsula Energy Ltd (ASX: PEN), Wayne Heili, and the CEO of Fission Uranium (TSX:FCU), Dev Randhawa. It’s worth checking it out if you want to hear about the ramifications of COVID-19 from another uranium junior.

Munro gives us a deep, technical insight into the uranium market that uranium investors will find incredibly helpful.

We discuss:

  1. COVID-19 Affecting Uranium Supply
  2. Kazatomprom: What’s Happening in Kazakhstan?
  3. Conversion and Enrichment: An In-depth Look
  4. UF6 Supply: How Much Have We Got Left?
  5. The State of EUP and Its Indications
  6. LTC Pricing: What’s the Process that Leads to Publication?
  7. Green Lights for Investors

If you are a uranium market spectator, feel free to check out some of the recent uranium articles on our platform as well as one of our most recent interviews with a uranium mining company.

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.

A photo of Bannerman Resources CEO, Brandon Munro.

Laramide Resources (TSX: LAM) – Things Are Looking Up For This Uranium Junior

The Laramide Resources company logo
Laramide Resources
  • TSX: LAM
  • Shares Outstanding: 165M
  • Share price: C$0.28 (08.04.2020)
  • Market Cap: C$47M

Crux Investor recently interviewed Marc Henderson; he’s the President and CEO of uranium developer, Laramide Resources (TSX:LAM).

We also recently interviewed the CEO of Peninsula Energy Ltd (ASX: PEN), Wayne Heili, and the CEO of Fission Uranium (TSX:FCU), Dev Randhawa. It’s worth checking it out if you want to hear about the ramifications of COVID-19 from a different uranium junior.

We’ve spoken to Henderson before. This time around, he’s feeling a lot more upbeat. It looks like the uranium market could finally be turning and uranium price discovery could be on the horizon. Laramide Resources’ USP looks valuable. The company could get into production a lot faster than most uranium juniors, and that can only be a good thing.

We discuss:

  1. Company Overview
  2. Survival of the Fittest: The Uranium Market
  3. Cameco and Kazakhstan
  4. Laramide’s US Assets
  5. The Future: Plans for Moving the US Assets Forward
  6. The Raise in January
  7. Changes to Invest-ability Criteria for Uranium Companies
  8. Australian Opportunity: Has Anything Changed?

If you are a uranium market spectator, feel free to check out some of the recent uranium articles on our platform as well as one of our most recent interviews with a uranium mining company.

Company Page: https://laramide.com/

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 Laramide Resources company logo

Fission Uranium (TSX: FCU) – A High-Grade, Shallow Deposit; Time To Finance It!

The Fission Uranium Corp. company logo.
Fission Uranium Corp.
  • (TSX: FCU)
  • Shares Outstanding: 486M
  • Share price: C$0.16 (31.03.2020)
  • Market Cap: C$78M

Times are testing for uranium producers and explorers, and COVID-19 has only made matters worse. How are uranium juniors coping in this unforgiving market? How will they survive, let alone get financed?

Crux Investor recently conducted an interview with Dev Randhawa; he’s the CEO of Fission Uranium (TSX:FCU), a uranium junior with a great project in the Athabasca Basin. We were keen to discuss the impact COVID-19 has had on the business.

We also recently interviewed the CEO of Peninsula Energy Ltd (ASX: PEN), Wayne Heili. It’s worth checking it out if you want to hear about the ramifications of COVID-19 from a different uranium junior.

Will Fission Uranium be able to get this shallow, high-grade deposit financed? If the management team can pull this one off, investors could see some big returns; that’s if uranium decides to make a comeback anytime soon.

We discuss:

  1. COVID-19: How Is It Affecting Business?
  2. Getting Funded: What Is The Plan
  3. What Is Fission Uranium Doing Different To All The Other Uranium Juniors?
  4. Views On NFWG Outcome: Now Irrelevant?
  5. Fission Uranium’s High-Grade Asset
  6. Remuneration: A Very Controversial Topic

If you are a uranium market spectator, feel free to check out some of the recent uranium articles on our platform as well as one of our most recent interviews with a uranium mining company.

Company Page: https://www.fissionuranium.com/

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 Fission Uranium Corp. company logo.

Ur-Energy (TSX: URE, NYSE: URG) – Putting On A United Front

The UR Energy company logo
Ur-Energy
  • TSX: URE, NYSE: URG
  • Shares Outstanding: 160M
  • Share price US$0.33 (17.03.2020)
  • Market Cap: US$53M

We recently decided to conduct an intriguing interview with a candid Jeff Klenda, President & CEO of Uranium producer, Ur-Energy (TSX: URE, NYSE: URG).

Ur-Energy is one of the two companies (the other being Energy Fuels) that submitted the Section 232 Petition to the US government Department of Energy. Klenda tells us why he felt it was the right thing to do at the time. 

Can Ur-Energy return to its former glory? Klenda was pragmatic, but he gave us some reasons for investors to believe.

We discussed:

  1. The NFWG Outcome.
  2. The Uranium Macro Story
  3. Ur-Energy’s Uranium Portfolio
  4. Keeping Their Heads Above The Water: Financial Plans In This Bear Market.

While you’re here, feel free to check out the most recent uranium article on our platform, as well as our most recent interview with a uranium mining company.

What did you make of Jeff Klenda and Ur-Energy? Let us know. These are particularly crucial moments for uranium companies trying to position themselves for prosperity.

Company Page: http://www.ur-energy.com/

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 UR Energy company logo

Denison Mines (TSX: DML) – A Smartly Positioned Uranium Junior?

The Denison Mines Logo.
Denison Mines Corp.
  • TSX: EQX
  • Shares Outstanding: 597M
  • Share price C$0.44 (27.02.2020)
  • Market Cap: C$278M

Uranium has been a stagnant investment for some time. However, in the last few weeks, particularly after the US Department of Energy (DoE)announcement of a US$150M uranium reserve budget, uranium equities were starting to show signs of life, only to see their legs kicked from under them this week. The DoE announcement, whist welcome and moderately positive, did nothing to clear up the continued uncertainty as to the US government’s stance on the nuclear energy market in the US. It has been perceived by some as pre-election posturing.

The selling has possibly been triggered by broader market conditions and alarmist news surrounding the Coronavirus impacts in Asia, but right now, it feels like guesswork to understand the uranium investment space. Even the brightest admit to being baffled and operating in a void, so they wait. Uranium equities holders though seem to have lost the FOMO element. They know they can come back in cheaply and have been missing out on other opportunities; even the gold guys have been making money…

Regardless of what the uranium price is doing right now, prospective and existing uranium investors share an unmoving philosophy: this is a sector with big unfulfilled potential. So, if you have settled on the thesis, aren’t jaded by the whole experience and haven’t had to average down for the last several months, it might be the perfect time to start picking winners as these market conditions could create some real buying opportunities for new entrants.

A uranium photo with uranium text and a nuclear logo

Denison Mines

CRUXinvestor interviewed David Cates, President and CEO of Uranium developer, Denison Mines (TSX: DML). It was an intriguing interview that you can watch by clicking HERE. There are numerous useful articles on our platform regarding picking uranium space winners and detailing potential red flags. Click HERE or HERE to read one.

Cates says Denison Mines has some unique qualities that could set it apart from the pack. It is a question of whether the market believes in the company’s business model and its ability to deliver it. However, as with all things mining, there are a few red flags, such as permitting, but Cates feels that they will be able to resolve this particular issue. Then it’s just a question of funding the CapEx in a difficult market, but Cates tells us they are clear on how they can do this too.

Denison Mines is a uranium exploration/development company with 90% ownership interest in the Wheeler River project, the ‘largest undeveloped high-grade uranium project in the eastern portion of the Athabasca Basin.’

Denison Mines’ c. 310,000ha Athabasca exploration portfolio also includes:

  1. A 22.5% ownership interest in the McClean Lake joint venture (which is currently processing ore from the Cigar Lake mine under a toll milling agreement)
  2. A 25.17% interest in the Midwest & Midwest A deposits
  3. A 65.92% interest in the J Zone & Huskie deposits and Huskie discovery on the Waterbury Lake property. Each project is located within 20km of the McClean Lake mill.

A High-Grade Flagship?

The Wheeler River project features two high-grade uranium deposits: Phoenix and Gryphon.

Phoenix’s high-grade core is estimated to contain 62,900t at 43.2% U3O8 for 59.9Mlbs U3O8. Denison Mines states probable mineral reserves of 109.4Mlbs U3O8 (Phoenix 59.7Mlbs U3O8 from 141,000t at 19.1% U3O8; Gryphon 49.7Mlbs U3O8 from 1,257,000t at 1.8% U3O8). A PFS conducted in 2018 puts the operating cost of Phoenix at US$3.33/lb U3O8.

While the resources at the Wheeler River Project aren’t enormous, they are high-grade, low-cost, and have a significant amount of explorational upside potential to “squeeze out.” Scale is one thing; a technically proficient management team, affordable mining costs, exploration upside, effective storytelling to the market and coherent business strategies are quite another. Our interview with Cates gets in to the detail of how he plans to deliver on all of those variables.

A nuclear reactor

Denison originally optioned the Wheeler River Project from Cameco. The team has delineated the uranium resources and expanded it. The story has been, to this stage, fairly conventional. Cates was able to explain ISR vs conventional mining debate.

Denison Mines has spent C$100M on exploration at Wheeler. It has repeatedly raised capital. Investors will need to decide if this has been spent astutely. Denison Mines is now prioritising its capital to further develop existing projects and delineate additional ISR-amenable resources. As of Q3/19 Denison Mines had C$10M cash on the books, and the company raised an additional C$4.7M in December 2019 and had a burn rate of around C$1M per month in 2019. We wouldn’t be surprised to see Denison Mines going back to the market soon. Investors clearly have interest in this story, and Cates is a straight -talker, but all uranium players are treading water right now. This week’s hit to their share price won’t help the mood of investors, nor Denison’s ability to raise capital. Cates is talking about structured finance as a possibility, but again the permits are the long-pole in the tent.

A nuclear power plant

Cates expanded on the Canadian permitting situation: in our opinion, an important and potentially disruptive stumbling block for Denison Mines. He admits it can be more difficult to obtain permits when utilising technology that individuals are unfamiliar with, but he maintains the lack of waste (no long-term tailings dump and minimal surface impact) generated by ISR is an advantage they will not be able to ignore. After all, Cates states that permitting is largely an environmental impact story. This is currently the main concern of this otherwise encouraging uranium story. Even the most bullish uranium investor will likely feel nervous because, despite Cates’ claims, the permitting process it entirely at the discretion of the Canadian government, and we don’t know what sort of timescale we’re truly looking at. Is this a red flag for investors? Can investors accept the risk that comes with operational choice being taken out of a company’s hands?

Denison Mines appears concerned in positioning itself to be able to get in to production sooner than its peers, rather than building a large resource:

  1. It will look to get into production before both NexGen and Fission.
  2. The project development CAPEX will also be around C$350M, rather than some of the numbers that we have seen in excess of C$1Bn.
  3. Once in production, Denison Mines can have contract conversations with utility companies which should provide long-term financial certainty to the market, or so Cates hopes.

Utility companies are unlikely to sign contracts with uranium companies not in production, so Denison Mines is positioning itself smartly. This is definitely a story to keep an eye on. If the team can time this right, they could well be on to a winner; that is if the province and state plays ball.

Company Website: https://www.denisonmines.com/

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 Denison Mines Logo.