- ASX: BMN
- Shares Outstanding: 1.06B
- Share price: A$0.04 (20.05.2020)
- Market Cap: A$42M
A Conversation with Brandon Munro, CEO of Bannerman Resources (ASX: BMN).
We have interviewed Munro throughout this uranium bear cycle; his insights have been incredibly useful for investors. Here is his previous interview.
Kazakhstan is easing emergency restrictions in some towns but what does that mean for the resumption of production of uranium at KazAtomProm. Munro explains. Also, we discuss what pressure Kazatomprom may be under and from where? Plus, how is Russia coping?
The US Govt is trying to get their seat back at the uranium table, after years of neglect. Will SMR technology be their saviour, and if so how long will it take. This week saw a big announcement with regard to their ongoing Advanced Reactor Demonstration Programme. Big numbers being thrown around. Bigger the US Dept of Energy has indicated.
And what are the Chinese and Russian SMR technologies capable of? We talk about use cases and applications on land and on sea.
Cameco has restarted their Port Hope facility, which was expected by most, but some selling in the market means that perhaps not everyone was pleased with the news.
And, finally, a sober statement by the European Atomic group, EurAtom warns of lack of transport hubs to accept nuclear shipments, lack of investment in conversion facilities and a permanent reduction of uranium and withdrawal from uranium exploration. And commented on that utilities must diversify supply and continue to maintain appropriate 3-years of strategic inventory levels. We discuss what they mean.
- Australia’s Successful Management of COVID-19
- Kazakhstan Easing Restrictions, Does That Mean a Re-Start of Uranium Production
- Russia’s Relationship with Kazakhstan and Possibilities of Influencing Uranium Producers
- SMRs: The Geopolitical Race, and the ARDP Report
- Conventional vs SMR: Costs, Locations, Infrastructure and People’s Perception
- Cameco’s Port Hope Announcement
- Selling at Market: What’s Happening with Equities?
- UR Atom’s Statements: Importance of Maintaining Inventories and Diversifying Supply
CLICK HERE to watch the full interview.
Matthew Gordon: Hey Brandon. How are you doing, Sir?
Brandon Munro: I’m well, thanks, Matt. What about yourself?
Matthew Gordon: I’m good, but you look like you’re back in the office. Have you been allowed to?
Brandon Munro: Well, I am. Yes, things in Western Australia are going really, really well. We’re getting about one new case per week right now. So, we’ve decided to go back to the office and in fact, the government in Western Australia has told everyone to go back to work and has now made schooling compulsory again from next Monday. So, it’s nice to be back in the office.
Matthew Gordon: That’s fantastic. I hadn’t actually realised that. I spoke to my mother, like a good son should do, on, I think it was last Sunday, and she was saying, I didn’t realise this, but Australia’s had only around a 100 deaths across the board because of the policies that they have implemented. So, you have been managing this extremely well. And, you know, because I do speak to a lot of Gold producers and others in Australia, and it seems to have gone quite well for you.
Brandon Munro: Well it has, in fairness, I think we’re assisted by just the way that we live in Australia. Western Australia is certainly benefiting from being very remote, and because of that remoteness we’re quite self-sufficient. So, closing the borders was for most people, just inconvenient: lots of loved ones being separated, you know, tragic stories, et cetera. A few businesses being affected by that. But in Perth, for so long, we’ve been such a long way from everywhere that it’s kind of normal. And where your mum is, I mean, Sydney and Melbourne, the States and new South Wales and Victoria, they have had a much greater concentration of COVID-19 cases and represented the majority of the fatalities as well. But they’re also bigger cities. They are denser cities. So, I think the combination of those two things and perhaps the really lovely warm weather that we’ve had has made the job a bit easier.
Matthew Gordon: It has. But we’ve got a nice segue here because Kazakhstan has ended the emergency and some restrictions as well, which obviously bodes well in terms of Uranium production. What is your take on that? Do you think they have come back too early? What do you know?
Brandon Munro: Well, based on the stats, the easing of restrictions seems appropriate. So, let’s just put to one side how solid those stats are for now. But Kazakhstan also benefits from being very low population density. Like Australia, it’s a very big country with a fairly small population. They do have more confined living, more European-style living, but they did lock down both in Nur-Sultan and Astana very, very early, and they closed their borders with China early. So, they took a number of measures that a former Soviet country can do quite easily in terms of the way that people are used to being regulated.
And so, where we’re at at the moment is, they announced it at the beginning of the week that the state of emergency has been lifted and a few of the restrictions have been changed. It’s less like a European lockdown and moving towards being a little bit more like an Australian lockdown. You can go and shop for things other than food now, for example. People can go back to offices if they need to, but we aren’t seeing any return to industrial activities. There’s still a lockdown of the regions there, and the report from the government and the comments from the president seemed to indicate that they’ll be reviewing that on a region by region basis. And as your audience would know, the regions that host the majority of Kazakh Uranium production were some of the earliest effected by COVID-19. So, I don’t see it really meaning anything for Uranium production and the resumption of wellhead development by KazAtomProm yet. It’s something clearly to follow. I think there’s possibly had an impact on equities this week with the headlines seeming to indicate that things are getting back to normal. But talking to people in Kazakhstan, it’s still a long, long way from that. It is the beginning of normalcy, but there’s still many, many steps that need to take place.
Matthew Gordon: Okay. And because if I look at some of the commentary in the marketplace at the moment, there’s a lot of adversarial, negative commentary around Kazakhstan: their impact in the market, the way that KazAtomProm playing this out. I know we’ve had conversations, and you know, you’re a believer and I know you have first-hand conversations with them, but you’re a believer that they are doing what they’re doing for all the right reasons. So, you don’t see them coming back anytime soon? Or do you think that they are going to be under some pressure from wherever to get back into production soon? Because, you know, as we said last week, oil revenues are starting to get bid.
Brandon Munro: There will be some pressure on them to come back soon, and when you read the president’s comments, and as you know I’m fortunate to have an in-house translator of Russian, so when you read the nuance of the president’s comments, they are obviously, like most countries, looking for industrial activity to recommence as soon as possible, but they’re also looking for stability of their currency. They are hoping that any forms of foreign currency can help to offset the impact of oil. So, on the one hand, you might say, look, that will create some level of pressure for KazAtomProm to come back, but you do need to remember that compared to what oil does for Kazakh foreign reserves. Uranium is still a tiny little blip. It’s very important to Kazakh pride because they have got such a dominant position in the Uranium market, but when it comes to dollars and cents or tenge, for that matter, it’s just a small little corner that doesn’t even register double digits when it comes to foreign reserves. And I think they will be very careful. It’s a big logistical mobilisation exercise here. They’ll need to get 22,000 people back operating to get this wellhead development going and they won’t want false starts. They won’t want to half-mobilise and then have, say, a second infection rate come from over the border, for example, one of two borders which are presenting a risk for them. And I think in the context of them having a good commercial basis for a continued shutdown, buffering those negative consequences to their operating business, I can imagine that they will take their time and make sure that they get it right.
Matthew Gordon: Okay. So it is inconsequential – Uranium revenues are inconsequential to the sovereign wealth fund, to the country as a whole; point well-made and well taken. But it does have a huge impact in the Uranium market, equity specifically. So, people and funds I suspect are going to want to see KazAtomProm not producing for some time because it will start putting more and more pressure – these lost pounds in the market is going to put pressure on. So can you, how long can you see them holding out for?
Brandon Munro: That’s how long is a piece of string in this situation. I mean, we could put on a white board, three great reasons why they should try and rush production back and three great reasons why they should hold off. And probably three extra reasons why the government would want them to come back and hold off at the same time, so there just aren’t any real indicators. I mean, one thing we should bear in mind is that their closest neighbour, both geographically but also culturally, Russia, is now going through a peak COVID phase. Their fatality rate is remarkably low compared to similar countries and countries that have a similar way of living. But nonetheless, they have slipped into third place, I think in terms of the total number of confirmed COVID cases. So, you’d expect that would be weighing on the minds of decision-makers, both government and industry in Kazakhstan. And as we’ve seen in other countries, it’s only a matter of weeks before we know if those Russian numbers have peaked and are receding and everything’s back under control. So, if I was making a decision whether it was a for a Uranium project or anything else for that matter in Kazakhstan, I’d be thinking, well, let’s give ourselves another few weeks and just wait and see how things play off on our northern border.
Matthew Gordon: Well, just on Russia, they have had 250,000 confirmed cases, and the official number is 1% but the numbers in Moscow, which suggest they potentially could be 3 times that, we won’t know for a while. And I suspect that Mr Vladimir Putin is struggling a bit because he’s, you know, obviously looking at some kind of constitutional reform process at the moment, and COVID-19 has come along and interrupted this somewhat. And I, you know, I’ve seen a few pictures of him sort of staring blankly at a screen trying to bark out orders and get things moving. But he, you know, he’s been isolating as well. So, I just wonder how much pressure Russia is going to be able to exert on countries like Kazakhstan? That seems to be a much asked question. Do you think that is realistic?
Brandon Munro: Well, I guess the question is, pressure for what ends? Do you mean on Kazakh Uranium production and making sure that they can access that production?
Matthew Gordon: Yes.
Brandon Munro: Yes, interesting comment, and you might have picked that up from some of the comments made by Grant Isaac from Cameco during the week where he pointed to his view, which I share, which is that Russia doesn’t have the domestic Uranium production, either mined production or from treating tails through their enrichment program, to power the full extent of their nuclear export ambitions. And for them, I think they’d be looking across the border at Kazakhstan thinking, well that’s okay. You know, we’ve got a long history of cooperation here. We’ve got a lot of shared cultural values. We’ve got a deeply integrated economy where Kazakhstan is still very reliant on Russian capital and Russia as an export market for other goods and so on. So, if I was Russia, I wouldn’t be feeling particularly concerned.
To their south, however, you know, I think the big question is for China, they have been able to buy pretty much whatever they wanted out of Kazakhstan so far. But if the Russian export program continues in the vein that it has so far, I think China will have to really start asking itself questions about how long and how much of that Kazakh supply that will be available to them over the medium to longer term.
Matthew Gordon: Okay. Well, I think people can look at that, and we’ll put links below to some of the conversations we’ve had over the past couple of weeks with regards to supply-demand. But today I want to talk about something else, which we’ve not talked about, which is SMRs. SMRs, again, it is that geopolitical race; be that Russia and China have got their designs, they each have got their own unique designs; land-based and floating. It seems there are some very interesting options there. And also the US this week has announced, well, I think potentially, it’s been going a while, but this week they made a bit of an announcement off the back, I suspect of the Nuclear Fuel Working Group Announcement a month ago, which is their ARD program, which is their Advanced Reactor Demonstration Program. So maybe we should start with the Americans first, should we do that? ARDP – so what’s that all about?
Brandon Munro: So, I think it is off the back of the working group report, and in fact it was, that report was cited in the press release. So, what they have said is they’re making available USD$230M to try and ensure that there is an American SMR, small modular reactor, technology in commercial operation by 2027. They have allocated a proportion of that to fund programs that are able to get a reactor in operation in five to seven years, in commercial operation. So, if we take a step back, and we have talked about this, but probably not in the last 12-months, America was leading the way when it came to SMRs, they had multiple viable SMR technologies, not just a couple. And because of, I suppose, the industrial capital roots of how American technology is developed, there were lots of competing companies including some very high-profile ones such as Mr.
Gates, and they all had their different technologies, which were all competing, essentially, only against each other. The Canadians had a design, and there were a couple of other designs around, but it was really an American race.
Then what we saw was the Obama administration turning its back largely on nuclear and the relevance of nuclear technology and in favour of a number of different technologies, but predominantly looking to position America in the renewable race and electric vehicles and so on. It was only when Rick Perry came as Secretary of Energy under the Trump administration that we saw some serious revival of these programs. There’s been a number of small funding grants made available. In fact, there was one last week for, I think, USD$27M for some sort of a switch that I don’t even understand that does something clearly important because they’re putting USD$27M towards it. But that’s an example. There’s lots of this going on, but this is the biggest and the boldest and certainly the largest number that’s attached to it. And it has attached a timeframe, which is quite clearly a call to arms that they want to have nuclear SMR technology capable of domestic and international deployment before 2027. And that aligns very well with the various comments made by the Department of Energy, which were summarised in that working group documented a couple of weeks ago.
Matthew Gordon: So, this feels rather like a giant science fair. They’re trying to identify a technology which is obviously proprietary to the US itself, and presumably they will come down hard one technology or another, and there are people who will insert themselves into that food chain along the way. But USD$230M is not a lot in the context of things. It sounds like a lot because the Nuclear Fuel Working Group, you know, they talked about USD$150M a year, and we don’t know where that’s being allocated. Isn’t it time for the US to start joining up these programs? Start to, you know, do what I think the Nuclear Fuel Working Group, we’ll call it a policy document, because I think some people are branding it, a policy document that shows intent, isn’t it time they sort of brought all of these departments, agencies together, and consolidated their budgets because it’s just all a little bit piecemeal, isn’t it?
Brandon Munro: I think the government approach is really reasonably centralised. You have got the Officer of Nuclear Energy that sits within the Department of Energy, and it has been really the dominant supporter in all of this, and they have done a good job. You know, when you consider that they inherited a fairly stale agenda from a Democrat Administration, I think they’re doing a good job. But your point about, is the broader interests of US nuclear technology better served by 2 or 3 competitors who have pooled technologies and pooled resources, rather than having an array of competitors competing for intelligence, competing for technology, competing for markets, et cetera. You know, that’s a debate that’s even being had at a conventional scale nuclear reactor table. And really the Western world, if it’s got a legitimate chance of fully competing with Russia and China on conventional nuclear reactors, they’re going to need to get together and have a standardised nuclear reactor in exactly the same way that China only exports in markets one single reactor of a one gigabyte scale. That’s the one on one. There is also the cap 1,400 which has a larger scale that’s designed to compete with the bigger EPR that France makes.
But the issue is the cost of getting design approvals; even generic design approvals run into the billions in key markets. And the confusion and just the difficulty for regulators of choosing between all of these different designs means that it slows down the process and it makes even a procurement exercise very expensive for governments, and almost prohibitively expensive for private power concerns. So, Russia exports a single reactor design. China essentially exports a single reactor design in the one on one, and this –
Matthew Gordon: Okay. So let me ask, so Russia has been out there for some time, China has been at there for some time America, it looks like it’s just starting the process. How long is that process? When can America start to genuinely say, we’re back at the table, guys. We’ve got a solution here which we think we can commercialise and we’re going to start doing that.
Brandon Munro: I think it is going back to the table already. If you look at some of the technologies that have continued in the meantime, they have continued to maybe not prosper, but they’re certainly as private enterprises, continued to push forward. And we’re seeing that, for example, in Australia where the nuclear power debate is fully restricted to SMRs-only, for a couple of probably pretty good reasons. And there’s one SMR reactor that had the best chance of, I think capturing the debate here because its audio visuals were superior, and it was the most advanced. And so, they’re definitely a front runner, but there are others as well. And of course, Bill Gates has used his profile to capture the imagination for their particular product.
What was slowing the US down was predominantly the availability of sites. And they are addressing that. They don’t need money to the same extent to do that. And that’s not such a big issue for China and Russia. And for example, China has already selected a couple of sites for their Agile Dragons that they plan to do –
Matthew Gordon: Nimble Dragons.
Brandon Munro: Your dialogue of Chinese must be slightly different to mine, Matt.
Matthew Gordon: Cantonese I’m going with, yes. Cantonese every time. But let’s talk about, I just want to remind people why SMRs are being considered as part of the future here. It’s going to come down to pricing, timing, mobility and tying into infrastructure. Why don’t we talk about some of those things? Pricing – conventional versus SMR.
Brandon Munro: Okay. So, first of all, they aren’t necessarily better value per megawatt of power produced. That’s something that remains to be seen. The hope is that they will be, because they can be produced in larger numbers and they can be produced in a factory. But the point is that they don’t require such a large absolute capital commitment. You don’t have to commit tens of billions of dollars to build a large scale efficient conventional plant. You can nibble away with hundreds of millions instead. And that will make them more competitive to, for example, renewables, that have been implemented in a smaller, more piecemeal fashion. But the factory production is really important here because it goes to several things that have slowed down conventional nuclear power. The biggest one is the perception of delays. There have been delays but they are mainly associated with first of a kind construction. And as we all know, the first motor vehicle of a new range takes several years to develop and once they’re in full production, they take a couple of days, and there’s been an element of that. There has also been a lot of lawfare that has slowed down the construction of conventional nuclear power plants. And also, just the availability of contractors that have got the skills and experience to construct what are still relatively unique and very, very large construction processes.
So, an SMR, the best of them are designed to be built in a factory, transported via conventional means to the site, and a relatively small amount of site works to be done. And that reduces, obviously the construction time risk. It reduces financing risk. It reduces the effectiveness of lawfare tactics by antinuclear campaigners. The fact that their footprint is so much smaller means that they can be built closer to urban centres. They’re less likely to evoke the emotions of interest groups and so forth. So that’s in itself a big advantage.
Matthew Gordon: Talk to me about that because you know, these are much smaller footprint projects true, and that the cost is significantly less, significantly less, but it still needs to be tied into an existing infrastructure. And you’ve just said these could be near or in urban centres. Do you think, emotionally, people are going to want a nuclear facility smack bang in the middle of their city?
Brandon Munro: It doesn’t need to be smack bang in the middle, but you don’t need a 50km exclusion ratio from one. Now, we know that you don’t need that from a well-placed, conventional nuclear power plant either, but it’s hard to convince the populace of that. There are many examples around the world where communities have asked for nuclear facilities to be placed near to them. Sometimes, like in Scandinavia, for as pragmatic reason as they don’t want to commute 50 kms, let alone build the power infrastructure for an unnecessary 50 km carriage of electricity. But just their scale, their design, their enhanced safety features and the fact that they’re totally different to the 1st and 2nd generation nuclear power plants that have had problems at Third Mile Island, Chernobyl, and of course, Fukushima.
So, but I tell you where their most interesting applications are; I think the best, most fervent case for SMRs is immediate, hand in glove, displacement of coal power generation. And that’s because you can pretty much match them up with your existing output of a moderate sized, coal-fired power station. And all of that electricity infrastructure’s all there. It doesn’t need to be rebuilt. It doesn’t need to be replaced. And in a manner of speaking, you could turn the coal station off one day and flick the switch on an SMR the next. And compare that to, let’s just say renewables for example, or hydro, or a large scale, power program that needs to be implemented; you just can’t use the existing grid infrastructure in the same productive way as you can by displacing coal with SMR nuclear.
Matthew Gordon: That’s interesting.
Brandon Munro: The other really interesting case is for remote applications. So, remote industrial applications such as mining centres, and Russia has one of those ear marked for its first land-based SMR. Remote towns, for example, certainly for military applications. So, the US is looking at not only small but mobile reactors so that they can establish a power system for their various campaigns. A highly localised power system that has all sorts of strategic advantages over other forms of power that they would use in that situation. And the big variety that we’ve got of SMRs in the pipeline, there are everything from tens of megawatts up to the sort of modularity that can achieve an entire gigawatt of power as it’s needed. So, there’s a new market for them. And when you look at remote applications that might otherwise be relying on, for example, diesel, there’s a very, very, very strong social, environmental and economic impetus for those types of solutions.
Matthew Gordon: Nice. It’s an absolutely fascinating space in terms of, well, I’m interested in how it will turn out, what those applications are. It’s, you know, they will package it according to the needs. They have got the ability to package it according to the needs. I was reading an article with regards to the RITM 2000, the Russian technology, which that kind of led on to this kind of floating power source. Now, that makes me nervous – ships at sea with nuclear power. Surely that’s a recipe for disaster. That sounds like a really good or bad Hollywood movie happening right there. So what are, because you touched upon it earlier; you said that they have enhanced safety features. So what are those enhanced safety features?
Brandon Munro: Okay. Well first of all, let me challenge your natural fear of floating nuclear reactors for a moment. Because we’ve had extensive nuclear reactors at sea since the advent of nuclear power, through predominantly Naval use. So, the Russians have maintained a fleet of nuclear-powered icebreakers as well because of their power requirements. And so, I think the US operates still 74 micro-reactors for their Navy. Russia doesn’t have quite so many, but they have got more diverse applications, and to my knowledge, and certainly to public record, there’s never been a single incident on any of those. Obviously, Naval ships had had other related incidents and they have had nuclear fuel on them but as far as we’re aware, of the world at large, that’s never created an issue at all. So, there is some precedent, very significant precedent for reactors operating safely at sea. And I could parrot some of the things that have been told to me by the technical experts about why flooding reactors are far safer, or have got simpler safety features to a land-based one, but I think what it comes down to is, it’s two things to do with safety and SMRs. The first one is the real safety features and they have had the opportunity to dramatically rethink all aspects of the production of nuclear power to craft the next generation of technologies here. And in that respect, they have eliminated to effectively zero the potential for accidents and the potential for radiological risks here. And everything that you can think of is included in these reactors. Now, in fairness, that’s the case with the Gen 3 reactors as well, they’re just at a larger scale. So that goes to the second point, which is the perception of safety, and in the nuclear sector to win the hearts and minds of some countries such as Australia, you really need to come out with something different, so, we aren’t talking about why Chernobyl could never happen in Australia, we finally can say that’s a completely different technology. You’re trying to liken a modern nuclear power plant to the Great Fire of London, for example. You know, it’s a dramatically different technology where a comparison just isn’t valid or fair. And whilst technically I can tell you that that’s true for a Gen-3 conventional nuclear reactor, it’s very hard to make that argument for someone who doesn’t spend a lot of time looking at the science of all of this.
Matthew Gordon: Okay. SMRs – very exciting. We’ll put some links in the commentary below and hopefully people can get into it. Get into the detail. Cameco, this week, I’m going to pat ourselves on our backs with regards to Port Hope – they made an announcement this week.
Brandon Munro: Yes. So, they’re returning Port Hope to full production. They want to be back at it fully by the 25th May. And I think what you’re referring to is that we both sort of deduced that as being quite likely from both the tone and the commentary of the Cameco quarterly results. If I remember correctly, we made the observation that the way that Cameco was talking about Port Hope and Blind River was very different to the, the words and the tone that they were using to talk about Cigar Lake, and we didn’t expect that that four weeks would carry on any further. And so, as it turns out, it hasn’t. And I think what we can glean from that is interesting for what it talks to their intentions behind Cigar Lake. First of all, the way that they described that shut down at Port Hope in the first place was very different. They were keen to get the message across that it was a pre-emptive move. It was to put it in their control. They didn’t want to be turning it on or turning it off. They used language like, ‘these industrial facilities don’t like being turned on and off, and particularly at short notice’. And they made a plan to bring forward some of the summer maintenance program that they otherwise would have had to undertake. So, right from the beginning the language was very different at Port Hope. And then the update that we had with the quarterly report was, the results, was also along those same lines compared with Cigar Lake where I think Tim Gitzil was, you know, genuinely quite upset about the outbreak that had happened at La Loche, which is a first nations community close to their operations in Saskatchewan where I think he said on the call there’d been 50 new cases reported in one day, and he acknowledged that they had employees from that community, and clearly they were all feeling that concern for that community. So, I don’t think Port Hope is any sort of indicator of what may or may not happen at Cigar Lake because they have been characterised very differently from the beginning.
Matthew Gordon: Yes. I was actually quite impressed with their quarterly call. It feels like a company in control. They know what they’re about and how they’re going to get there responsibly, genuinely responsibly. Because again, when we get this feedback, people try and read into perhaps too much, read into the intent. And we get a lot of commentary about KazAtomProm and Cameco controlling the market, controlling pricing in the market, which again, we’ve discussed at length on numerous occasions. I don’t think it could be further from the truth.
Brandon Munro: I agree. They are a responsible company that is doing things for the right reasons.
Matthew Gordon: Yes, absolutely. Now, a little bit of activity in the market this week – there was a bit of selling. There’s a few, I’m not quite sure why, some people said that it might be fund liquidating their position or taking advantage of the price in the market. Have you got any thoughts as to what happened?
Brandon Munro: As far as the equities are concerned, I don’t have a good feel for what’s happening. I’ve got a couple of wild theories, or rather not so wild theories. And if you look at the bounce that Uranium equities have had, they have oversold quite deeply but that was in common with just about all speculative resources stocks, particularly when I look at my watch lists across other commodities, even technology and so forth. But they did make quite a good recovery. I expect with a spot price that’s flattened now, it has come back a little bit. There’s probably some people who bought the dip and who are now taking profits and that doesn’t surprise me. We haven’t seen such big volumes, not in the stocks that I follow, anyway, that indicate a big level of fundamental selling or fund selling. Maybe you’re seeing it differently in some of the other stocks, but I haven’t seen anything that would indicate more than people just going, you know what? On 100% percent of my money in a few weeks, spot price has flattened, it has come off a few cents. Maybe I should just take some of those profits and see if we see more volatility.
Matthew Gordon: I think that’s right. I think that’s right. And that is what we did, you know, the price has levelled out again. I don’t know, I’m not seeing much movement anytime soon in that. And I think, you know, a few people called that: yourself, Dustin Garrow called that. Until something meaningful happens in the market, I don’t think this is going to move one way or the other anytime soon. But we shall see. We shall see – the great famous last words. I don’t want to talk about that with us today, but I do want to make, I just wouldn’t mind your observation on it – Euratom – they made a couple statements. I mean some were a bit obvious and some that surprised me. They talked about a lack of transport hubs, a lack of investment and permanent reduction. So, you know, those comments in the market, I mean, did you any of those surprising? Why did they bother giving that statement?
Brandon Munro: Yes, look, I mean, I didn’t find any of it surprising, perhaps I’m not the right person to ask. When I looked at the report, I think I deal with about half of those people through the World Nuclear Association Working Groups. So, all of these factors I’m quite close to because of what I’m doing there. But to put some of those things in a bit more context, so for the audience, this is basically a security of supply report that is produced each year. It’s not the inventory report that people are looking forward to. We’ve got a couple of weeks before that comes out, although it did make a broad-based comment on inventory where as I expected, and as most people would know in very broad terms, the average level of inventory held by EU utilities is 3-years of supply, and that’s been fairly consistently the case.
And in fact, Euratom imposes legal requirements to hold minimum levels of strategic inventory on its members. And so, the transport issue: they were identifying risks rather than problems that are here today, and so it needs to be looked at in that context. The transport risks, what they talked about is political interference with ports and transport routes to enable the carriage of nuclear infrastructure, whether it’s power, whether it’s waste, whether it’s components, whether it’s construction, et cetera, et cetera. This report was focused more on nuclear fuel, but there is some risk within the EU that interest groups, political or otherwise, they’ll start interfering with that. So I think it was quite appropriate that Euratom get that out in the open, put it in front of policymakers, warn them of the consequences, and they didn’t take the next step, which I think is to do a little bit of lobbying in favour of nuclear transport. I think there’s been 11,000 transportations of nuclear fuel without a single incident in the EU, so that’s pretty good going over a few decades, and a few more people should know that statistic. But I don’t see any present-day concern that that will stop reactors operating, but it’s an increasing challenge that they need to face up to.
Matthew Gordon: The one thing I did take note of in that, sorry to interrupt you, Brandon, was the average inventory levels in Europe of 3-years. And I couldn’t quite work out from the language use whether that was the case now, in which case, we’re looking at utilities sitting on 3-years’ worth of inventory, which is a big clue, or it is suggesting and making recommendations that that is the case.
Brandon Munro: They have traditionally held between 2 and 3 years of inventory. I guess we’ll know the answer to that. I’d have to go back to the report and have a place to look at it now that you raise that, we will know the answer to that in a couple of weeks’ time. It was the, you’re right, the comment was made in the context of holding strategic inventory is a key mitigation that all EU utilities must maintain both to disruptions, potential disruptions from transport that we’ve just talked about, but also, for the 2nd year now, they shone a light on disruption, future disruption of production, lack of investment, they talked specifically about the production of Uranium going offline and not coming back on again. So, there’s a degree of recognition there of the remarkable decay curve that we have in the world’s current Uranium production out there. So, that strong message coming through there was that European utilities would be very unwise to deplete their current levels of inventory. And it’s obviously a message for other utilities in the rest of the world as well. And that goes to what we’ve talked about before, which is whatever causes utilities to stop under buying and destocking their inventories will bring a fairly rapid price response in the Uranium market.
Matthew Gordon: Absolutely. And I think the one other point, and we’ll finish up on this, because I think you’re right – in a couple of weeks’ time, when there’s a bit more information in the market, we should come back into this. But the other thing they talked about, and I don’t think it’s going to be new news to utility buyers, is diversification of supply for, partially because of the reasons we’re talking about here, but also dependence on any one major supplier could be problematic for them, not just physically but geopolitically in this current environment.
Brandon Munro: And it’s worth reading up as well on this point because diversification of supply is one of those things that everyone’s been aware of. But not concerned by over the last few years until quite recently. And for utility buyers, it’s almost like, oh yes, we know we should be diversifying supply, but while prices are this cheap, we can probably stretch that rubber band a little bit. So, the importance of diversification has been a little bit lost in a low price environment, both from a sort of a bargain hunting perspective, I mean people who like a bargain will look past lots of flaws in something if they’re getting it at half or a third of the price that they paid recently. But equally, low prices indicate lots of availability of supply and you don’t feel the risks of an undiversified portfolio in the same way.
So, the language has really changed in this report. It’s recognising, without naming, the various geopolitical tensions that are going on in the marketplace and its timing, straight after the report of the working group, it probably would have been finalised and ready for publication before that report was released. But there’s been plenty in the lead up to the Department of Energy report that would give them the clues and the signals to what would potentially be coming, whether that’s Iran sanctions, the Russian suspension agreement or just an elevation of geopolitical language and rhetoric that’s creating potential supply disruptions here. So, all good, solid advice for European utilities and the utilities, the world over which ultimately will benefit Uranium production.
Matthew Gordon: Yes, and I think that the American producers will be banging that drum loud and clear too, because I think their argument is buying cheap is a kind of false sense of security. You know, it may be good now, but it’s causing them huge difficulties in the long run, potentially. Well, that’s a topic we should get into I think in a couple of weeks’ time. But Brandon, great weekly catch up and thanks for explaining it. I mean, I’m fascinated by this SMR. I’d love to talk to you more about that, the SMR technologies out there and how that plays out.
Brandon Munro: Yes, it’s a big topic. It’s an interesting topic. It’s a moving feast and it’s one of the real big opportunities in nuclear power for winning hearts and minds. And we didn’t even get on to talking about fast breeder reactors, which recycle their own fuel. So, we’ve got something up our sleeve for another slow week.
Matthew Gordon: So that sounds like, well, yes, I think we will have another few slow weeks so we can take advantage of that. Well thanks again. You had better get back to, you look like you’re at work. Is there anyone there or are you by yourself?
Brandon Munro: No, no. Everyone has knocked off, it is a Friday afternoon after all and it has gone five o’clock. I’ve still got a report to get to the board, so I’ll be here for a little bit, but I’m not complaining, it’s just so nice to be here in a quiet environment.
Matthew Gordon: I bet. A change is as good as a rest, right? And what, I always ask you this on a Friday now, so what is your wine of choice going to be the evening?
Brandon Munro: Oh, you know what? I haven’t even thought about that, but I haven’t drunk any red this week. I’ve been quite busy and so the extent of my indulgence this week has been nicking a glass of white off my wife. So, I reckon, I have a decent 2011 Shiraz Malbec, produced in the geograph wine region of Western Australia by the most incredible people called Barrecas winery. Beautiful, beautiful people. It’s a husband and wife team. They do amazing things with wine and everything else. , I reckon I might phone ahead and ask my wife to just take the top of that for me and get it breathing
Matthew Gordon: Sounds good to me. Sounds good to me. Fantastic. I think I might go for the Lebanese tonight. I think I’ve got a cheeky 2001 Chateau Musar, I think it is got my name on it. It’s a bit early to be talking about that right now, so I may change my mind during the course of the day, but that’s what I’m planning.
Brandon Munro: Yes. Yes. You’ve got time on your side. If I’m going to get a bit of oxygen into that bottle, I’ve got to make a decision fairly soon.
Matthew Gordon: Well, I’ll let you go and do that. Brandon, thanks so much. We’ll speak to you next week.
Brandon Munro: Yes, great. Thanks, Matt.
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.