Why Is Your Uranium Investment a Winner?

Energy Fuels Inc.
  • Shares Outstanding: 121M
  • Share price US$1.71 (11.09.2020)
  • Market Cap: US$206M

I have just penned an article regarding uranium investing. In it, I explained that investors need to be looking for uranium junior investment propositions that have trump cards to set them apart from the pack.

If you think back to the last cycle, the flood of new uranium entrants were quickly whittled down to the juniors who could build a mine and sell pounds, and the juniors who couldn’t. I expect the exact same thing to happen this time around, perhaps on an even more dramatic scale. We are already seeing juniors who jumped on the uranium or lithium bandwagon jumping off and becoming gold miners! It says a lot about the mentality of the management team: fickle and clearly just promoters?

While we have by no means entered the next uranium cycle, some interest is beginning to reinforce the uranium macro story. The many recent potential catalyst moments, such as the US DoE’s NFWG report, haven’t pushed the U3O8 spot price much beyond $31/lbs, but there appears to be a sentiment shift taking place.

With this in mind, it is time to pick some uranium winners. I like uranium players in tier-1 jurisdictions with strong, strategic backing, an extremely economic project or portfolio of assets and a management team who have been there and done it before. A bit of cash to see out the remainder of this bear run would also come in handy, because dilution is not a good look right now. However, the question will then need to be posed: why is your uranium investment a winner? Just what sets it apart from the competition? There is room for some uranium players, but there is not enough capital to go around.

Once I have settled on a list of companies that satisfy these fundamentals, it is time to search for a trump card. I’m looking at one of these today. Energy Fuels, America’s leading producer of uranium and a potential producer of vanadium and REEs, has several things working in its favour.


Let’s start with the obvious. With the US administration, particularly in an election year, aiming to restore America’s competitive nuclear energy advantage, investors may well expect some degree of federal backing. They may well think this given the fact that Energy Fuels owns some of the largest North American uranium mines and has a history of producing. The company’s portfolio is unique within North America, containing more production capacity, licensed mines, licensed processing facilities and in-ground uranium resources than any other US uranium producer. So, if politicians are buying the security argument, then Energy Fuels ticks that box.

While the US House of Appropriations Committee recently took the decision to block the funding of a US$150M US uranium reserve, most uranium commentators see this as a blip along the road rather than a major setback. Energy Fuels’ CEO, Mark Chalmers, was positive, and he expected the topic to be revisited once the US Department of Energy can provide more clarity about how exactly the reserve would be allocated. This could happen soon after the US Elections take place. It has become clear that nuclear is a part of the potential Biden administration’s energy plans, and this has been of great encouragement to uranium bulls after the prospect of a less than enthusiastic Sanders-AOC ticket.

Moreover, with America also trying to build a new critical minerals hub, REEs could well be endorsed and subsidised. Globalisation has been drawn into sharp focus by Trump, and it appears his last few months may set a few national industry initiatives in motion; that is if he or his administration have the free time to get some concrete numbers out there. If not, expect the Biden administration to continue in the same vein.

With assets across Utah, Nevada, Arizona and New Mexico, investors couldn’t really hope for a more stable mining jurisdiction than North America. With the government’s backing, perhaps permitting timetables will become more favourable. Anyhow, the company’s location is a clear leg-up on the opposition.

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This is the big one. Energy Fuels has the ability to monetise various feed streams by processing them at it 100%-owned White Mesa Mill, the only remaining fully-operational conventional uranium mill in the US. This can range from tolled processing to environmental cleanups. All of this drives capital into the company’s bottom line and makes it less reliant on volatile market conditions remaining favourable.

White Mesa Mill is an absolute game-changer, and many uranium speculators have thought as much for a while now. It has a licensed capacity of over 8Mlbs of U3O8 per year, with plenty of scalability potential to leverage increasing uranium prices. However, it has not and probably will not ever operate at this level any time soon. It can also process vanadium and rare earths. In early 2019, the company produced some of the highest-purity vanadium product in its history courtesy of resuming recovery operations. The vanadium macro story is also compelling: strong, industrial demand in stainless steel, which may well be accelerated by the Chinese reflation package, is sprinkled with some futuristic spice by the prospect of large scale vanadium redox flow batteries (VRFBs). While not yet commercially viable, these could eventually become a real vanadium demand driver. It seems eminently feasible that the US administration will pursue uranium, vanadium and REEs as strategic commodities. After the outright mess that was the Section 232 process, it would make sense to advance the American agenda via partnerships that would afford retained control.

In terms of rare earths, this is yet another commodity that America is trying to wrestle back some control of from China. Energy Fuels announced its intention to step into this space a few months ago and it is symbolic of the optionality White Mesa provides. Indeed, the company recently announced partnerships with both Constantine Karayannopoulos and Neo Performance Materials, a chemical manufacturing company. This could well be shaping up as a new incarnation of Mountain Pass Rare Earth Mine, a Californian project that used to provide most of the world’s rare earth elements. This might be a little premature to be talking about, but the early signs are positive.

It is a demonstrable trump card that Energy Fuels appears to be able to step into any lane it chooses whilst reaching a positive outcome. Cash flow is not solely reliant on mining uranium. Uranium will always remain the paramount focus, but in an investment class so opaque and so volatile, this degree of diversification is gold dust.

The mill also gives Energy Fuels a monopoly over the region. Numerous companies have announced their intention to use White Mesa to toll their uranium product, including as many as 5 in interviews with Crux, and Chalmers was been keen to tell them to stop. He has not yet received any contact from them, and when he does, it will be on Energy Fuels’ terms. The message is clear: Energy Fuels owns this district, and it appears to be positioned more strongly than any other American uranium player for the new bull market. Furthermore, the mill is large enough to process all feedstock within the region. If other American producers want to succeed, they can either ship ore expensively to South America or play by Energy Fuels’ rulebook.

Let’s take a quick look at the summarised potential of White Mesa:

  1. Licenced capacity: 8Mlbs pa of uranium.
  2. It is an old mill, but it is relatively cheap to maintain. Could it be upgraded and optimised even further?
  3. The peak historical operational capacity is 5Mlbs pa. A lack of feedstock imposes these limits, so tolling will be the inevitable solution. I look forward to seeing what the terms look like. Will there be any pressure on Energy Fuels to provide reasonable pricing? I can’t see how there would be.
  4. White Mesa is licenced to process uranium and vanadium ores, in addition to c. 18 licences to process additional feeds that are not primary ores. Even Cameco has sent low-level tolled uranium though here before.
  5. Energy Fuels has made around $5M-$10M from alternated feed and clean-up operations. Once again, the feed has been the limiting factor, and the company could well ramp this up to over $15M pa. Additional clean-up operations could help matters.
  6. When operational, on average, White Mesa has historically recycled c. 500,000lbs of uranium pa.
  7. Commercial operations would be most conducive to success at around 2Mlbs of primary ores per annum because the mill requires a particular critical mass to remain in an optimal state.
  8. While it is designed to process around 2,000t of ore per day, investors will want to see these numbers transformed into reality. I see no reason why they can’t be, but the mill is unlikely to become active before around 100,000t of feed is available.
  9. In 38 years of operations, White Mesa churned out 45Mlbs of vanadium. That is $500M of vanadium in today’s money. Impressive.

These are 2 main trump cards at Energy Fuels’ disposal, but it is certainly worth mentioning one more, though I am not yet sure this is the route the company will take. Many uranium companies will never produce pounds, but that is not to say that their projects are the problem. The uranium sector has needed consolidation for a while, especially to get the utilities to start taking things a bit more seriously, and with a district-scale land position, cash in the bank and additional revenue streams providing a degree of security, Energy Fuels could could be poised to go on an M&A run when the time is right. Having just announced that it will be debt free by October 2020, combined with the RSA decision also planned for October, could this result in some serious growth for uranium investors? It certainly appears possible.

You can find more uranium investing content and exclusive views from experts from all over the world at cruxinvestor.com/club, along with company reports and research, interview summaries and a thriving community of like minded intelligent investors sharing investment ideas and thoughts in a considerate way.

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

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Jeff Klenda #01 – Russian Uranium Use by US Utilities is Unpatriotic (Transcript)

  • Shares Outstanding: 160M
  • Share price US$0.62 (29.04.2020)
  • Market Cap: US$95M

Conversation with Jeff Klenda, President & CEO of Ur-Energy (TSX: URE, NYSE: URG)

Klenda gives a no holds barred take on the market. We discuss games being played by utilities in the NFWG discussions and what their real intent has been. We has if that has been the real barrier to seeing action by the US govt. And why has the US House Appropriations Committee blocked funding for a US uranium reserve. Do utilities want Russian uranium? Klenda gives us his strong views of what that will do to the markets in the US.

Klenda believes that the Russian Suspension Agreement is critical and share with us his thoughts on the possible outcome. Plus his take on Cameco’s decision to restart Cigar Lake in September. A missed opportunity or exactly the right thing to do?

We Discuss:

  1. 2:47 – US House of Appropriations Decision: What’s Next?
  2. 10:16 – Frustrating vs Critical: Impact on Business
  3. 15:10 – History of the RSA: Approaching Deadline
  4. 26:15 – Utilities Can Buy From Wherever: Fears for the Worst?
  5. 30:17 – Hypothetical Scenario: Questioning the Survival of Uranium Companies
  6. 33:01 – Cameco’s Quarterly Call: Opinions and Implications
  7. 39:15 – Market Perception and the Future for Uranium

CLICK HERE to watch the full interview

Matthew Gordon: Jeff, how you doing, sir?

Jeff Klenda: I’m doing fine. I’m being a good boy. I am isolating in place. I am functioning remotely, and I’m finding that being reckless suits me, I’m thinking about making this permanent condition. I have decided, there seems to be a bit of a petition circle out, so, but we’ll see how that plays out.

Matthew Gordon: I promise I didn’t start it. You’re being a good boy and you’re being effective. I’m glad to hear it, Jeff. We wanted to speak to you because we love your directness and your views on the marketplace. A few things happened since we last spoke. I am going to come to the Cameco call, but I’m going to leave the best to last. The US House Appropriations Committee: they basically blocked the Uranium reserve funding of USD$150M. What’s your take on that?

Jeff Klenda: They did. First of all, we all know that this came about as a result of the Working Group, which released its report on April 23rd. For the uninitiated, let’s give a bit of context here: The Working Group started as a result of our failed 232 action in July of last year – so, 1-year ago today. It was supposed to be done in 90 days. It was delivered to the White House in November; however, it was not released to the public until April 23rd. Now on July 6th, the House Energy and Water Appropriations Committee came out with their appropriations bill, and of course, the USD$150M did not make it into the mill. What they did say was that they were allotting up to, and  that’s critical to qualify that, that they were allotting up to 180-days to gather more information, or more specifically for the Department of Energy to provide them with more information, and further, to provide them with justification.

Now, it is important to note here that we have spoken to the personnel who have been directly engaged with the Appropriations Committee from DOE, they were both surprised and they, I don’t think I’m speaking out of turn here: they were perturbed by it. They felt that they had interacted with them and given them everything that they had asked for months, and the 180 days you notice would push us past the first of the year. It was nothing more than a delay tactic. I like to say things as they are, and it was a delay tactic. And I would emphasise one other thing and that is that our House of Representatives is Democrat controlled. This is precisely what we were anticipating. So, no surprises here.

Matthew Gordon: No surprises, but there’s hope also in the fact that the Senate Appropriations Committee hasn’t said no yet.

Jeff Klenda: That’s correct. And so that becomes the question: where do we go from here? How do we get there? So, first course of action would be, of course, is that we get it inserted into the Senate Appropriations Bill. Now, the thing that needs to be noted there is that we are being told that the Senate will not have its Appropriations Bill submitted until the end of September. That sounds like a long way away, but it is 60-days. Unfortunately, it also coincides with the United States government fiscal budget and the end of that budget year. So, that’s fine, but that is one of the issues. It is almost certain that it will be included in the Senate Appropriations Bill. Now, if for whatever reason it fails to make it into the Senate Appropriations Bill, it can also be brought to the floor in the form of a floor amendment, and that can take place, and that can be brought by any one of the members. And of course, if that were to be necessary, we are prepared to take that action. We hope that, we don’t believe that that will be the case. We believe that we will see that in the Senate Appropriations Bill. So, that’s not the only way that this can come about.

In addition to that, one of the things that is not well understood is that the Department of Energy does have the ability to make this appropriation themselves out of current funding. One of the things that you saw in the House Appropriations Bill was either USD$42Bn or USD$43Bn that was allocated for the Department of Energy, which represented, I believe an 8% increase year over year. It can be taken out of one of the other pockets from the DOE. And in fact, I pulled up a quote that I thought was particularly relevant, this is according to consultant TradeTech: industry sources indicated that there was some acknowledgement that the DOE should start preparing for the launch of the US Uranium reserve and storage program based on current funding. So, that from TradeTech. Whether or not that’s going to be the case, I really don’t know. But, as we were talking about earlier, Secretary of State Dan Brouillette has had a lot to say about this since it failed to make it into the Appropriations Bill on July 6th. And some of his comments, he made these comments in front of the House, Energy and Commerce Subcommittee on energy 2-weeks ago. In that note, he stated that the department’s Nuclear Fuel Working Group wants American-owned Uranium and plans to begin processing US Uranium into hybrid fuel at a DOE facility in Portsmouth, Ohio, as early as next year.

What they have been doing is that they have been transferring the centrifuges from other locations to the Portsmouth facility to reactivate it. So, that would actually bring enrichment, domestic enrichment back to the United States on a much faster calendar than even what the Working Group Report called for, since they did not technically call for it until 2025. So that that’s. That’s our 2023. So that’s important to note that Brouillette is making statements on this and he’s talking a lot about it. So, in addition to that, it is also important.

And I want to make one other comment, because the question is, how do we get to the USD$150M? And that is, it can be introduced in the form of legislation. And one of the things that Brouilette announced in this was in a publication called The Utility Dive, I am not really familiar with them, but it was stated, in addition, DOE and Dan Brouillette is working with Representative Robert Locker, an Ohio Republican, and a member of the subcommittee on legislation authorising the creation of the Uranium reserves.

And I will note that we know of at least one other piece of legislation that is in the works right now in draft form although I am not at Liberty to speak about that. We know that there will at least be 2 pieces of legislation that will be introduced to Congress with respect to the Uranium reserve.

Matthew Gordon: This is the problem with dealing with government: there’s a lot of moving parts. And lots of agendas, personal, political party, and otherwise, and you’re never going to be in control of those moving parts. Sometimes it is easier to get a fighter jet through than it is for the national security of the energy of the country. That’s a whole other discussion. But is this frustrating for you, or is this critical for you? You have started a process, you wanted to see it through, but you are not in control of that.

Jeff Klenda: Well, this actually goes back to July of 2017, when we met with Rep. Rick Perry in his offices, and one of the things that Rick Perry said to me, I was able to get a few seconds with him, after the UPA meeting, there’s a lot of people in the room. He’s effectively saying to us, ‘look, bring me something that can be investigated in a determination that would be made by the Department of Commerce, and that can be put on the president’s desk for a final decision’. He noted to everybody in the room, this is the Uranium producers of America do not let his thing go through Congress – how right he was. You get in the middle of this, and in fact, it is so convoluted that it really is beyond frustrating. It can be confusing at times. And we have dealt with this frustration.

How critical is the Working Group? It is vital. We would love to see that USD$150M a year, even though I consider it to be just a good first step, although I consider it to be wholly inadequate for preserving the front end of the fuel cycle. What is actually more important, and  that you have to look at this holistically, what is happening with the Russia Suspension Agreement, because this can have impact for many years to come and also what’s happening in terms of our supply-demand fundamentals, because those are evolving and changing very quickly as well.

Matthew Gordon: We’ll come on to RSA in just a second. I just want to address a specific point around frustration versus critical, which is, I know you’ve got inventory, and that has a value on your balance sheet. It is not the value you want because you don’t believe that the price in the market is where it needs to be, and it will go higher. You have also got a bit of cash as well, because you have got contracts. So, critical v frustration: does this affect your ability to do business in the next 6-months?

Jeff Klenda: No. Quite to the contrary. We have our board meetings today and tomorrow, and we’ve had meetings with our auditors, and we use PWC – best in the world. They’re great guys. And unfortunately, every 5-years you get a new team assigned to you. We got the new team this year, so we’ve had to ramp them up on everything that we do, but we’re in a solid position. We know that we have, 12-months ahead of us. If we did not, and this is important to emphasise to them, we would be required to insert growing concern language in our quarterlies. We have no such requirements. We know that we’ve got solid runway for another year. And, depending on what happens over the course of the next few months, we should be in a position where we are very hopeful that we will see the value of our inventory grow.

Matthew Gordon: I’m going to couple what has been going on with the US House Appropriations Committee’s decision, with what you’re intimating, which is it’s political. They’re putting it off until after the elections. So that’s a big moment. That is clearly a big moment for the industry as a whole, so I won’t make this about the election. Do you have something to say on that?

Jeff Klenda: Let me just make one last comment with respect to the Working Group, and that is with respect to process. Now, the Senate will not come with its Appropriations Bill. They’re saying until the end of September. No decision is going to be made on the budget bill in its entirety until after the election. What you have here is that immediately after the elections, you are going to see the House and the Senate engage in what are called conference negotiations. That is just a very nice term for saying that the port will be flying, my port is better than your port, my port needs to stay in the bill. Your port needs to be removed from the budget. So more than likely they will fight this out until the 23rd of December, when they’re both thoroughly exhausted and angry, and they will come up with a bill or a budget that none of them like, but they want to go home for Christmas so they will live with it, and that’s what we all get to live with it as a society here in the United States. And how is that system? It is broken, but it is what it is. So that’s what the process is, and that’s how it will play out. And we will do everything in our power to make sure that that USD$150M is included in that final budget.

Matthew Gordon:  And the RSA, the Russian Suspension Agreement – it is pretty much played by the same sorts of rules. Isn’t it?

Jeff Klenda: It is a little different. The beauty of that is, at least Congress isn’t involved. Congress is hopelessly partisan. They will never agree on anything.  that, what’s going on in America right now is just a cluster almost beyond imagination that nobody would have anticipated. I don’t think anybody in the country would have anticipated what we’re seeing playing out, politically on the halls of Congress on Capitol Hill and in the streets of major cities in America right now. This is not about the death of one man at the hands of a police officer in Minneapolis. This is about anarchy. This is about the overthrow of America, as we know it. And if we fail to take decisive action after this election, obviously, I don’t think we are going to see it before the election because it is too politically charged. After the election, it needs to be, in my view, it needs to be put down and it needs to be put down hard. And infer what you will from that statement, but it needs to be put down. And I hope that will be case.

Matthew Gordon: It is tough times in the States. It is not good viewing from outside the States. It is a very divided country at the moment. And I hope there is some way you guys can work out how to get together, at least on the nuclear subject.

Just on the RSA component, you started answering it, but you got distracted by what’s going on in the States, but the RSA, the Russian Suspension Agreement, , since the seventies, you have had to deal with Russian supply. You’ve got the suspension agreement in place. It has got to be resolved by the 31st of December this year. If it is not ‘we call the whole thing off’. So what do you think is going to happen?

Jeff Klenda: Okay, let me give some context there, and we are interested parties so we have status in those negotiations and so we have been intimately involved in them every step of the way since the first quarter. Keep in mind that the Russian Suspension Agreement has been in place for 28-years since 1992. And I will give our government officials in the Department of Commerce credit for entering into this agreement, I believe, for the right reasons. Keep in mind, this was a politically charged time; the wall had come down just three years earlier. There were scientists disappearing. There was Plutonium disappearing. There were bombs that were disappearing. The Russian Suspension Agreement was an attempt to provide much needed cash flow to a government that was shattered, that had been shattered by the wall coming down and let’s face it, one of the best ways that they were raising funds was through the sale of some of the most liquid assets they had: and that was technology that was plutonium, that was nuclear weaponry. We had to put a stop to it. So buying what we had hoped, it started out to be, would be primarily blended down Plutonium, was the intent of the Russian Suspension Agreement, and then that went well through the nineties, and then Vladimir Putin came into power.

And one other thing happened, and that was the Kazakhs in 1999 were let out of the Suspension Agreement. They started building up ramping up immediately. Vladimir Putin saw this Suspension Agreement, its potential to be used as the geopolitical weapon that he has certainly used it as ever since then. What has been happening is that there have been a series of, call them administrative reviews, and there was a major one in 2008, but there have been two or three since then. And what the Department of Commerce is engaged in right now is yet another administrative review. It was called for by one of the enrichment players, and the Department of Commerce has been seen that through. We have been engaged in the process roughly since February. Now, since that time in the interim, we saw the Nuclear Fuel Working Group report come out on April 23rd. The Department of Commerce has said, look, since that report came out, we treat that as the law of the land. We all know what was called for in there: the establishment of a Uranium reserve, the diminishment of regulatory constraints, the ability of the NRC to stop the flow of nuclear material coming into the United States anytime they felt it was appropriate for national security purposes. And also to pave the way to facilitate small modular reactors and micro reactors that are coming in the middle of the decade. But they emphasised that we had to rebuild the nuclear fuel cycle, starting with the front end of the fuel cycle: U308 and conversion, and ultimately, in 2023, enrichment. We already talked about how that appears to be taking place more quickly now, which is a good thing, by the way, it is a good thing for our utilities.

It is a good thing for our national security. So the Department of Commerce has been engaged with the Russians in negotiations. And don’t think that I’m being cryptic here, I have to be careful what I say here, because I am under stipulation than I am restricted in what I can say, so if I speak in somewhat cryptic fashion at times, please forgive me, but it is because I am restricted. But the Department of Commerce released on June 17th, their post preliminary analysis memorandum. In that memorandum, they basically came to the conclusion, after a series of administrative reviews, that the Russian Suspension Agreement was leading directly to price suppression over the last several years and that the contracts, the massive and I can’t stress enough the term massive, that the contracts that our domestic utilities have entered into with the Russians and the Kazakhs were leading directly to current price suppression and will lead to further price suppression in the future. It also concluded that the Russian Suspension Agreement in its present form was no longer in the best interests of the United States. And it called for the amendment and extension of that agreement, stipulating, saying straightforwardly in the memorandum that if that could not be accomplished, then we needed to then resume what was the order of the day back in 1992, and that was the in depth investigation and the tariffs of 120% of material coming in from Russia.

And one of the things that I would stress to your viewers is that when you talk about the Russian Suspension Agreement, suspension really refers to the suspension of that investigation and of those tariffs. If nothing is accomplished here by January, by December 31st, then what you have is the suspension then goes away and you get the resumption of the full scale investigation and the tariffs.

So what happened is that we got a note from the Department of Commerce where they indicated, and I want to make sure I have my date correct here, they came out and they announced that they would, that the administrative review would be tolled: T O L L E D for 60-days. The administrative review has been extended to October 5th. During which time we can either amend and extend the Russian Suspension Agreement, or then we get to the end of the year, and it doesn’t even have to wait till the end of the year, if no agreement is reached by October 5th, then presumably, and presumably, it is called for, under the agreement, the full scale investigation will resume as will the tariffs. This is what we know right now.

Matthew Gordon: What’s your bet for January 1st? What’s the state of play?

Jeff Klenda: January 1st. First of all, we will already know the outcome of the Russian Suspension Agreement. We will further know whether or not the Working Group, whether or not we’ve been successful through that morass that is the political process. We’ll know whether or not we’ve been successful in getting the USD$150M into the budget.

But  that one of the things that is worth noting right now, and I’m not going to go into any details on this, but what emerged is that the United States utilities, they are interested parties just as we are, and they have status and so they are engaged in these negotiations. But one of the things that I want to emphasise is that they have become the third leg of the stool. I would say that they have gotten to the point where they are exercising outsized influence, and absolutely inappropriate control of this process. And it is, so much so that you wonder who the Department of Commerce is really negotiating with. I just asked that question, and that it is noteworthy that these utilities have been, they have orchestrated this scheme to put massive contracts in place over a three-year period of time. This is nothing new. This has been going on since 2017, with the taking the calculated risk that they would be able to bull rush their way through commerce and make sure that these massive inventories secure their needs through to the middle of this decade. And it is also important to understand that under normal circumstances, we would have been engaged in 2018 and 2019, in a contracting period that would have continued on into this year, but it didn’t take place. And the reason it didn’t take place is because unbeknownst to us, our Russian, our domestic, excuse me, that was a Freudian slip there – our domestic utilities have been engaged in this ongoing collusion and massive contracting with the Russians and Kazakhs, that have made sure that they don’t need anything, if there are allowed to keep those contracts in place, if they are grandfathered, then it is going to be very negative for our space for the next five years. And that’s the harsh reality.

Matthew Gordon: So utilities, not unsurprisingly, are looking at their bottom line and thinking of this as a commercial transaction. The US Uranium producers are seeing this or positioning this as a security issue to the government. Utilities are big, the lobbyists are paid well, you guys are small. You can punch above your weight, but it is still not enough to compete with these guys. Do you fear the worst come January the first?

Jeff Klenda: I don’t. And I’ll tell you why: because that the good thing about the Department of Commerce, and I will say, this is, the team that is negotiating this is their enforcement division, these guys are big. I want to credit them. They’re tough. They are not going to be bullied. They are not going to be pushed around. And  that while the utilities have a small, an army of lobbyists out there and spending millions of dollars per year advocating for the Russians and for the Chinese and for other foreign governments, , as a matter of fact, the joke inside of the industry is  they have more lobbyists than we actually full-time employees left in the industry. So that’s a lot to overcome, but I don’t think that the Department of Commerce is going to be bullied on this. At the end of the day, they will do what’s in the best interest of the country. And I believe that they will act in a manner that is consistent with the outcome of the Working Group report.

Matthew Gordon: But do you honestly believe that if the utilities can get supply from wherever, that the government is going to have a problem with that, I mean the energy will be there for your population, and the US. The energy is there short term. Do you think that’s the problem of government, that they’re thinking too short term?

Jeff Klenda: In the past that they have, and that until we brought Section 232, that was absolutely the case and nobody was going to contest it. If Section 232 did nothing else, that led us to the Working Group, and the Working Group with that high-profile group of participants, and the report that was released on April 23rd has led us to a high level of awareness of our dependency. And let’s face it: Coronavirus has contributed to this. We are now acutely aware of how dependent we are on critical drugs that come exclusively from China. More than half of our critical minerals come from outside of the United States, and our Rare Earths – we are 80% dependent on the Chinese.

So now you’re talking now we have managed to work that into that same dialogue; when we’re getting our nuclear fuel, that constitutes 20% of our base load energy in this country, and we’re getting it predominantly from the Russians, we’ve got a major problem here. We cannot let this go on. And we put it on the national stage. That that’s a good thing. And that, first of all, one other thing I would emphasise is that the United States government cannot afford to think too short term on this. They have to have the front end of the fuel cycle, because if you do not have domestically produced Uranium and conversion and enrichment, you do not have unobligated material that can be used for military purposes, we’ve to fuel the nuclear Navy. So that while they were thinking short term, and perhaps they didn’t put the emphasis on this that they should have in maybe over the last several years, that is no longer the case.  this is, not only that, but one of the things with the Working Group that I would emphasise, we not only have the support of this administration, we have the bipartisan support of Congress. And most importantly, short term, we have Dan Brouillette as a very strong advocate for the fuel cycle. And that we’ve got the support that we simply did not have even a year ago.

Matthew Gordon:  Hypothesis: if the government doesn’t help you, what can you do commercially to survive? Do you think you can survive in an environment where the government has done you no favours with regards to clarity over Russian suspension agreement? Is that possible?

Jeff Klenda: Yes, that we can. Look, let’s assume a zero scenario where let’s the Russians prevail, or I should say the utilities prevail in the Russian Suspension Agreement negotiations, and there is no love there and there is massive quantities being allowed to come into the United States from Russia for the next 20 years – that’s a bad thing. The Working Group, we don’t get the $150M in the budget, and we’re left on our own. Once again, that’s a bad thing. But that, first of all, we’re in a position where we’re in solid position for the next couple of years. That’s not really an issue. When you consider that most of the Uranium space has been living equity raise to equity raise for the last 10-years anyway, we are simply a year, a year and a half from now join their ranks. We, as a company, feel like we’re uniquely well-positioned to withstand that. I’m not terribly concerned about that. And I do think that there that the supply-demand fundamentals are beginning to assert themselves.

And I know that in the past you have had guys like Mike Alkin on the show. I know Mike very well.  that he’s doing some very, very good analysis right now. And of course, we all are familiar with the analysis of UX and Jonathan Hinsey over there, so you have a couple of different schools of thought. Now, if you listen to Mike, Mike will say, listen, things are much more dire than is being indicated by the industry experts. Okay. Who is right? Well, we don’t know for sure, but one of the things that we do know is that Cameco has been shut down to the tune of 36Mlbs per year, this morning’s announcement, notwithstanding, and we know that the Kazakhs have been shut down and the Kazakhs have some unique issues of their own. Coronavirus has meant particularly plaguing them and their production facilities and winter is looming. So how long do the Kazakhs stay shut down? That’s a question that nobody, I don’t think anybody can answer. I don’t even think the Kazakhs could give you a firm answer to that right now. We are in a position where the supply-demand fundamentals could reassert themselves in a very big way, by the end of the year.

Matthew Gordon: This morning in the Cameco quarterly, Tim Gitzel, came out and said…the big thing that people were talking about is the reopening of Cigar Lake in September, or restarting of Cigar Lake in September. And, it will take a while to ramp up, but the general reaction so far, it has only been a few hours, but it has been quite negative.  people would like KazAtomProm to continue to remain shut down. They would like Cameco, who shut down for the right reasons and said that they would reopen for the right reasons, different reasons, but the right ones, ie. we need to either sweep up spare inventory in the marketplace, and we need the price to get back to where it should be for us, be able to mine and produce economically. So why would they not take this opportunity to reinforce that message? Why open up so quickly?

Jeff Klenda: Let me say here, I have a lot of respect for Cameco as company, and they are the bellwether in our industry. They, as we used to say about IBM, they’re not the market, they’re the environment. In some ways, while that really is Kazakhstan, Cameco is in the commercial markets, so what they do matters. And that this morning’s announcement took the market by surprise, because it is absolutely inconsistent with market pronouncements that they have made over the last 2-years.

Since they shut down McArthur River, they stated very straight forward, they were a basically taking a page out of the ConverDyn playbook, where we’re going to go out there. We’re going to soak up as much material as we possibly can, out in the marketplace, that we’re going to announce appropriate shutdowns. So that was more than two years ago with McArthur River, and with Cigar Lake that was earlier in the year, and they attributed it at the time to coronavirus – COVID, and said that they felt that it was a good opportunity to do exactly what ConverDyn had done, and that is really to soak up excess inventory and secondary supply in the marketplace and to bring the market back into equilibrium. And everybody applauded those comments. And we were really starting to see some movements, seeing some strength in the space over the course of the last couple of weeks, particularly as the, let’s just say uncertainty, regarding KazAtomProm and probably what their actions would be in the months ahead has arisen. And, I thought that Riaz spoke to those quite eloquently when he was when he was on your program.

This is something that really is a bit confounding from the standpoint that, wait a minute, you said that you were going to do these very good things. Now you come out and you’re telling me you’re going to ramp up. They had some very light contingency language in there saying, well, this could be coronavirus contingent, but why they would make a comment that would knock on their own stock by 15%, that baffles any commercial marketplace.

Matthew Gordon: But that is the arbitrage between the ethics, because there are people involved here. People’s salaries are fully covered, but they’re trying to run a commercial business. We don’t know what conversations they have been having with utilities from around the world. Tim skirted around who and where they might be. There are obviously conversations going on in the terms of those contracts. It might be good news for the industry?

Jeff Klenda: Well, that it might be as well. Once again, it depends on who you believe. You and I have talked about this. I mean, is it the very small deficit that UX believes that it is? Is it the 30+M, 35+M lbs that Mike Alkin believes it is with his analysis? Now that there’s a big disparity there; who is correct? Well, we don’t, that’s hard to say because most of us don’t do the deep dive those guys do in terms of analysing the industry. You guys certainly do a very good job of it. You get everybody on there that’s relevant. And then you get a lot of different viewpoints. These guys really tear apart the numbers. Frankly, I hate to confess it, but I don’t do that. I run a Uranium company. I always want it to be a primary supplier to the domestic industry here in the United States, and that’s the business model. I didn’t want to be anything beyond that. These guys really dive much deeper. Who is correct? How deep is the deficit this year?

What we do know, that right now, at least 46Mlbs will come out of the market in 2020, we do know that the targets or primary supply in the market are somewhere in the 110Mlbs, 120Mlbs range, down from 138Mlbs last year. Some of that maybe gets made up some of it doesn’t. If you’re down around those numbers and we do know the consumption’s going to be upwards of 180Mlbs, that’s a very large delta there. There’s a very large differential there. So how has it made up? We know that you can’t make up the entire amount of the secondary supply in under feeding so there is going to be a deficit in the market. How large the deficit is, we simply don’t know? We will have to wait to see some of these things play out. I personally would have liked to have seen Cameco simply do what they said they were going to do, and that is really be a force for good and help this market regain its equilibrium once again. I can’t explain this to you.

Matthew Gordon: There’s some very clever guys out there, but they are only as good as the data that they’re given access to. The problem with this opaque market is that there is a lot of data, which is unknown, so it has been guesswork for the last couple of years, in a very meaningful way. Cameco’s move has changed the perception of the market. What the market said today with all of these industry companies seeing red, is that investors would like to have seen Cameco stay out of the market for a little bit longer, possibly until the new year. That would definitely give us a view of the number of lost pounds in the market. It would definitely give advance of the supply-demand metrics that we’ve been looking at, from even whatever you think the numbers are, UxC or TradeTech or some of the funds. It is a bit more obvious. And it would seemingly show a bit more control over the ability to bring the price discovery back to the market. Overall, it has been quite disappointing news this morning, but we don’t know what other conversations Cameco has had.

Jeff Klenda: Well, let’s take a look at it this way: if it takes some months to ramp up, then perhaps those scenarios are still intact, where we were really envisioning with both the Cameco primary properties being shut down and the Kazakh properties remaining offline, at least for the time being, for an unknown duration. We didn’t know that. But our market strategists felt that we would see +USD$40/lbs pricing by the end of the year. And that despite the fact that we have experienced a bit of weakness, we can attribute that to what we know has been some short selling in the marketplace and the guys that are trying to gain that delta between ConverDyn and Port Hope. That’s an issue. There are guys that are trying to gain that, so we know that there have been short sellers in the marketplace. And  that is what has led to the short-term market weakness, but we didn’t feel that that would last very long, and we felt that especially once we got past September 1st, August is  a throwaway month, as we all know, once we got past September 1st, we felt that we would see this perhaps slow, but inexorable rise up to that USD$40/lbs mark and beyond, by the end of the year. I still think that that is a distinct possibility, depending on what Cameco’s actions are here. And as soon the analyst projections are correct, Cigar Lake will not be enough to halt that. It will not be enough to prevent $40/lbs from happening by the end of the year. Some of those more aggressive projections are, in fact, going to be the ones we see play out.

Matthew Gordon: We are going to have to wait and see what the impact is going to be. Timing of term contracts being done in any meaningful way – anyone’s guess at the moment. Thanks so much for your time. As ever, frank, to the point, love it. We will hopefully get some more news soon.

Jeff Klenda: Let me just say thanks for what you guys are doing, because you are keeping it out there. And not only that you’re doing it in a very even-handed way, you’re putting the right guys in front of the screen that know what they’re talking about and tell the story. And it allows investors to at least weigh the information for themselves and make educated decisions based on our industry. And for that, I really, I thank you. I appreciate it.

Matthew Gordon: I am getting a warm, tingly feeling, Jeff. That was very, very sweet of you. Thank you so much.

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.

Brandon Munro #19 – Running Out of Uranium as Supply Cuts Impact? (Transcript)

Bannerman Resources Ltd.
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price A$0.035 (16.07.2020)
  • Market Cap: A$37.06M

Uranium Market Commentator & Bannerman Resources (ASX: BMN) CEO, Brandon Munro, calls in for our weekly catch up about the world of Uranium and Uranium investing.

Kazakhstan continues to be the bellwether for uranium recovery and activity in the market. We discuss the sweeping up of loose inventory in the market and the implications for investors. The longer the production supply continues the better retail investors like it. So what is causing disruption to their production numbers and when does life get back to production? And what else is happening in the supply market? And will investors like it?

We Discuss:

  1. 2:16 – Bannerman Resources Scoping Study Announcement Update
  2. 4:09 – Kazatomprom: Opinions on Earnings Release
  3. 8:11 – Supply Delays: Time and Effort to Get Back into Production
  4. 11:49 – Wellhead Development Lag: Process, Impacts & Implications
  5. 17:43 – Big Producers Buying in the Spot Market: Price Discovery to Follow?
  6. 20:59 – Debates on Cameco’s Restart: Are They Speaking with Utilities?

CLICK HERE to watch the full interview.

Matthew Gordon: Hello, Brandon, how are you?

Brandon Munro: I’m really well. I’ve had a really nice week. What about you, Matt?

Matthew Gordon: I’ve had a really nice week too, but you have had a very busy week, as well as having a nice week. We did an interview and you also announced the Bannerman Resources scoping study this week. So how did that go down?

Brandon Munro: It has gone down well. It is obviously a process to educate a market about any new development with the company. We’re at the beginning of an educational process here, and that’s going to require doing things like the interview that we did, which has gone down really well, I had some really great feedback there. Everyone appreciated that they were tough questions. And  you managed to get out in the open a lot of the things that investors would be wondering, and that’s the real value of doing that exercise. But , we are on call today, a conference call today, we’re doing various other things, obviously all the one-on-ones and the written stuff. And what’s different here with the Bannerman’s Etango 8 Scoping Study is, we have taken a large project, made it smaller. Most of the time, the market is used to a Scoping Study coming in a linear way after drilling. So here we’re presenting something of a choice to the market. They have actually got to evaluate one thing against another whereas normally you just put out a bunch of numbers and mark besides good, bad, tick, cross, buy, sell, and so forth. That has been interesting and will involve a lot more explanation going forward.

Matthew Gordon: We don’t want to make this a Bannerman conversation, but then congratulations on that move. You reacted well to market concerns of the size of the project and the reduced optionality. This gives you a clear path to getting into, production earlier for less money, and you managed to maintain the economics as well. This is about helping people understand the macro around Uranium. It is our weekly catch up. And I want to come back today to our favourite country – Kazakhstan. Kazakhstan, home of KazAtomProm, it’s a very polarizing company. If you talk to people in the West, they have got some very negative views about them. If you talk to people in the industry, they would agree that it’s a company which is trying to Westernise the way that it approaches the marketplace, But, as a big player, it’s going to be tough for them to satisfy and satiate everyone.

They had an earnings call this week. What was your take or some of the things that came out of that? And then if you don’t mind, I want to drill into a bit of the other information.

Brandon Munro Well, the most important thing to come out of the earnings release, the call comes in a few weeks time, the most important thing to come out of the earnings release is that they have maintained their plan to recommence wellhead development during the month of August. There was a bit of speculation about that because since they originally announced that plan four weeks ago, the Kazakh government has extended twice the lockdown measures, and there seems to be no end in sight for getting COVID under control in the country. Their plan is that they want to mobilise all of their workforce and they have continued to emphasise that it will be a gradual project process. Of course, it is subject to the requirements of safety for their employees, their families, their communities, and so on. So that’s the first thing that came out of it.

A couple of other interesting things coming out of it: the market has certainly taken note of the fact that they acknowledged for the first time publicly that they have been buying in the spot market. Now, this is something that isn’t unexpected at all. CEO Pirmatov has given 2 interviews. The most recent was released on about the 10th July, saying that they are reserving their position on spot market buying, and then he basically flagged that for the market. But what I found interesting is that the earnings release indicates that they entered the spot market at the end of the quarter. Even in June, they were buying in the spot market. Very interesting because they still wouldn’t have had to need to run down their inventories to any great extent, they are just choosing to buy in the spot market, which tells you quite a lot about where their concerns are about the market from here.

And then there were a couple of other ditties in there as well:  their production for the first half hasn’t been materially affected. Now that’s something that we expected, given that we’ve been talking about the lag effect with the production disruption and the way that ISR mines operate. And they also gave a bit more clarity as to how long that lag effect is, confirming that it is for to up to 9-months, which I found interesting. We knew that it was 4 or 5, 6, but to say that it’s up to 9-months, clearly is signposting that this disruption is going to go well into 2021.

Matthew Gordon: Let’s talk about some of those supply components, because the inbound questions that we get asked every day of the week, people are trying to understand how do they time this? How do they time buying? When should they come into the market? Where should they be looking, et cetera, but specific to KazAtomProm, people don’t necessarily trust  KazAtomProm because they have a track record of over delivering in the market when they said they wouldn’t be. And there’s this adversarial-type conversation going on from companies in North America. It’s a very difficult environment for them at the moment to operate. But let’s look at some of the components which affects supply, which may inform investors as to maybe where and when they should be looking.

So, first of all, we talked about bringing their employees back in a safe and measured way. That’s important. You’ve got +20,000 employees across the country to try and do that in a safe way. We saw what happened in Victoria in your country. We have had an outbreak caused by one set of bad decision-making there, and it has caused all sorts of problems. Let’s talk about the process of getting 20,000 back to work and up to speed and fully optimised. Any idea on timing of that? How long does that take? Could they possibly see the sorts of problems that Victoria has seen?

Brandon Munro:  it’s a big challenge. I really do, and the thing is, it’s not the challenge that Cameco faces where they need to move a thousand employees and contractors back into one place. This is very different because it’s a distributed industry. It’s all of the Kazakh mines that we’re talking about. And as you say, there’s about 20,000 people who each need to go in various different directions. It’s not clear for them how road travel is going to operate amongst the COVID restrictions that are still in place in Kazakhstan. And for someone who wants to get just a little bit of a feel as to what is required at a mine site level to deal with this, the Cameco call that we had on the 29th July, they articulated, they had their senior people on the call who articulated a long list of the steps that they’re taking to ensure people’s safety. So that’s not business as usual. It takes a long time to adapt. You have to train people to do all of these different things. So timeframe – they are saying, and they said in the earnings release that they want to have everyone back at work by the end of the month, end of August. We are a week into that already and it would be really interesting to see how they’re going with that.  it’s a different thing to have people back at work and to have people operating effectively. And that’s where a lot of the language around doing things in a staged and measured way, that’s where it becomes important. I don’t know if they’re paying people to stay at home at the moment, but we did hear from Cameco that they are. Everyone at Cigar Lake is still on full pay. It doesn’t really make that much difference to KazAtomProm, if that’s the case, to have people turning up for work versus turning up for work and being productive. The measure, the observable measure here, which is everyone is back at work, won’t give us too many clues as to the level of productivity we can expect from that.

Matthew Gordon: Okay. So that’s really important to note: being at work and being effective, 100% effective are 2 different things, right? Because this is company which produces 24%, it says on its PowerPoint, 24% of the world’s Uranium, and they in their partners altogether control 40% of the Uranium. So, it’s a big company. It can make a big impact into the supply story. There’s possibly a lag there. And you’ve also talked about, wellhead development lag. Let’s get into that. It might be worth explaining what the process of the wellhead development required is? We’re coming up to winter, what are the impacts there? And what’s the implications of this delay for next year?

Brandon Munro: So, as we’ve talked about, the way an in-situ recovery mine works is wellhead development means you’re drilling wells into the ore body in a very simple 5 well configuration – imagine on the corners, you’ve got injection wells. On each corner, you inject acid into the ore body. And then in the middle of it, you’ve got an extraction well. You acidify the well, pump the acid into the hydrological, permeable ore body, and then you suck it out in the middle. So, first thing to understand for people new to this, is that the wellhead development that was undertaken before the suspension in April is continuing to produce Uranium. In other words, the drilling and the acidification continues to allow that solution to be pumped up to the surface through the extraction well, put through the plant, the Uranium extracted robotically, put into drums and away we go. They did maintain those staffing levels so that all of the ore bodies could continue to produce from already acidified material.

Now equally, and this is a time lag that  KazAtomProm referred to, from day zero, when they send their teams back out, figure out which well was drilled last and which ones to be drilled next and off they go, it’s a significant lag, and the lag can be between 4 and 9-months. So we are going to see that lag operating in 2 ways: the first way is if you say that 4-months from the initial disruption, there has been very little impact on the number of pounds that are being put in the can at the mine, we’ve only just started to feel that impact in the market because it was 7th April that that was announced, and here we are sitting at the beginning of August, the first week of August. So that disruption is only starting now in a pounds in the can sense, and no matter what  KazAtomProm do in August or September or October, for that matter, that disruption will continue. It will only be once the August, September wellhead development starts to acidify and impact, that we’ll see production start to tick up again, which puts really all of it into 2021.

So, numbers – they did confirm their guidance. So back in April,  KazAtomProm said, we expect to lose about 10.4Mlbs from total production, not just attributable production in Kazakhstan. And when they announced that they would be trying to bring people back in August, they didn’t change that guidance. What that tells me is that the additional pain from the extension of this disruption is all going to be pushed into 2021. In other words, the 3-month initial estimated period of disruption will only affect that tail, or that lag will go until December. And the extension of that, which looks like it’s going to be the best part of 2-months, when you consider what we’ve been talking about, is going to go into 2021. So clearly, we’re going to have those numbers affected as well. And if you take the outer band of that, which is 9-months, that means that some of these mines will be on a reduced production basis all the way out into the end of May 2021. There is substantial production disruption coming into 2021 numbers as well.

Matthew Gordon: Absolutely. And does winter have an impact in Kazakhstan? I’ve been there in winter and it’s pretty darn cold, but can they still continue to mine?

Brandon Munro: Yes, we are on the steppes there, so it’s -30, -40, not uncommon at all. And they can still drill. You can do conventional exploration drilling out there. You can do wellhead development drilling. It can slow things down, of course, like any difficult climatic conditions. But the key here is, when it’s that cold, they don’t acidify. They might be able to get the wellhead configuration in place, but if they don’t time it right, they will need to wait until the thaw before they can put the acid down and have the acid starting to acidify the well and get the hydrology moving along. The thing that a lot of people don’t really understand with ISR is, it’s not primarily about grade, it’s about hydrology. You can have an ISR ore body and its grade can be great. Its grade can be average, but the most important thing is how permeable it is, because if you’ve got issues with the permeability of an ore body, then grade becomes very secondary. For investors who are very much locked in on conventional open pit or underground mining, where grade is king, you need to think in a different way with ISR. And that’s why getting the timing right for acidification becomes very important for them.

Matthew Gordon: That’s a great point. We’ve had that question a lot from people about supply. We’ve talked about getting people back to work and being effective, how it impacts supply. We talked about wellhead development and some of the barriers that are affecting supply. The other thing which has been happening, and you did touch upon it earlier, is that KazAtomProm have been in the spot market, as has Cameco, mopping up spare inventory. Now, that also affects supply. Given what you just said about wellhead development, given what we know about the demand in the marketplace, how is KazAtomProm mopping up this inventory going to help with spot price, price discovery?

Brandon Munro: Well, it’s going to accelerate that process. And first of all, it will, together with Cameco, the action of the producers purchasing in the market will unlock any remaining free material, any remaining mobile inventory, they’re held by traders or financial players or utilities if they have got anything excess that they think that they want to sell. There there’s a myth out there in the Uranium sector that there are large volumes of mobile inventory, and there are large volumes of inventory, because that’s the way the industry has always operated. You don’t do just-in-time delivery if you’ve got a USD$5Bn nuclear reactor sitting there that needs to produce power 24/7. Inventory is a part of their sector, but it’s sometimes gets misrepresented as being, we are sloshing and wading through inventory that is available in every last little corner. Maybe that was true to a degree a few years ago, but it has certainly been tightened up now. And that’s what I’m most interested in learning here. We saw from the Cameco call on the 29th July, that they haven’t found it easy to find their inventory. Every reference to people selling pounds to them had an air of gratitude to it in the way that it was presented. And that’s now the question for Cameco: will they also find it challenging to access that inventory? Where will they go for it? And back to a comment that you made a few questions ago about trust, I certainly take what you’re saying. There is a lot of challenge that Cameco has got on a trust front, but I don’t think it’s their own doing. In the last several years, well, let’s say the last few years, they have been very consistent on their big calls. You can take what they say at face value. They said that they don’t sell into spot anymore. That was treated with a lot of suspicion and cynicism, but that has been the case – they haven’t sold into spot for the last couple of years and they still don’t sell in the spot. They stopped selling to the traders, that was also taken with a fair bit of scepticism, but it is in fact the case.

We can take what they’re saying on face value. And in this case, they’re saying things on face value, like for example, there won’t be the opportunity to catch up production in 2020 or 2021. So again, not only are they going be running at their 20% production discount that they announced a couple of years ago, but they will be losing production without any capacity to catch it up.

Matthew Gordon: We heard from Cameco about the restart, just over a week ago now. Some people were speculating as to why they would do that. Why not hold on just a little bit longer? It should help drive the spot price up. And people thought, well, perhaps they have been speaking to utilities, perhaps they have got contracts at the sorts of levels which they require. Are you hearing anything in the market which suggests that might be the case?

Brandon Munro: Yes. And people who watch this series every week will recall that one of the motivations that we thought was at play here was concerns by Cameco about what KazAtomProm would be doing and how safe their future access to pounds were over the next 6-months. And that that is exactly what’s playing out here. Cameco has got a very nuanced view of the market; apart from being the biggest Western world player here, they operate conversion facilities, they operate storage facilities. They have got a trading division. They see a lot that other players in this market, including KazAtomProm simply aren’t able to see. They have read the tea leaves and I expect they have read them well. The first image in those tea leaves that we can see at the moment is that KazAtomProm has been buying in spot. The next image in those team leaves that we understand is that there’s this lag effect that’s really going to hurt KazAtomProm production; , in their own release, they use the word ‘severe effect on their production’. For our language that is very, very strong and you don’t often see that.

Cameco are reading those tea leaves. And I do believe that they realise they are going to have to get their skates on to get Cigar Lake back into production, because they can’t run the risk of having no primary production and a big gorilla competitor in the spot market, potentially such as KazAtomProm.

Matthew Gordon: Let’s move into the Crux Investor Club section of this, because there is some stuff I want to talk to you about where we’re looking at frame-working and analysis and how you pick winners and how you understand companies. And, over the next couple of weeks, we’re going to address that. We’re going to start today with a topic, which is extremely useful. It’s essential. And has been brought up in conversations we’ve had with people operating in Canada, Uranium juniors in Canada. Let’s do that. I’m going to say thank you very much to everyone who has been watching this series with Brandon and I. I hope you enjoyed what we talked about today, KazAtomProm clearly has a massive influence in the marketplace and really critical points there made today by Brandon about supply in the market.

We are now going to switch over to the Crux Investor Club member section where we are going to just get into the weeds a bit, certainly around analysis and part of the core series that we talk about. Thank you, everyone. We’ll see you next week.

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.

Baselode Energy (FIND) – High-Grade Uranium; Unconventional Thinking

Baselode Energy
  • Shares Outstanding: 29M
  • Share price C$0.46 (19.08.2020)
  • Market Cap: C$13M

An interview with James Sykes, CEO of Baselode Energy (TSX-V: FIND)

The high-grade uranium deposits of the Athabasca Basin are seen as the holy grail for uranium investors. Have they been wrong all along? Can they get permitted? Is the permitting process putting off institutions from providing CAPEX? Do the structural faults and water table / basin mean they can get permitted to be mined?

We ask these questions to James Sykes, CEO of Baselode Energy (TSX-V: FIND). He is a young and energetic geologist, and he has 12-years of Athabasca Basin uranium exploration and discovery experience as a structural engineer and discovered the Arrow deposit for NexGen Energy. He clearly knows a thing or two about that Athabasca Basin. Why then has he opted for a uranium project just outside of the Athabasca Basin, in what he is calling Athabasca 2.0? He has doubts about whether projects in the Athabasca Basin can actually be mined. This is a view that will likely see him ridiculed by many uranium investors and companies, so is there any evidence behind this concept?

Matthew Gordon talks to James Sykes, August 2020

Baselode Energy is the first of a new wave of uranium explorers that are trying to position themselves favourably to leverage rising uranium prices ahead of the emerging bull market (assuming you believe the uranium macro story). The company has two uranium projects: The Shadow Project and the Hook Project. Both are very early stage, but both exhibit promise says Sykes.

The Shadow Project

The Shadow Project is 100%-owned with no underlying royalties.  The property encompasses ~42,000ha along the Virgin River Shear Zone adjacent to the Athabasca Basin.

The company asserts that Shadow exhibits all of the similar structural and geophysical features synonymous with the “Best-of-the-Best class” of Athabasca high-grade uranium deposits, such as the McArthur River and Arrow. It also claims there is a degree of ‘natural uranium enrichment in (the) basement rocks.’

A >10 km-long airborne radiometric anomaly has been identified at the property, and the plan moving forward to to focus on historical data and get a team on the ground in the next few months to explore the radiometric anomalies and learn the geology of the area.

The Hook Project

The Hook Project is 100%-owned with no underlying royalties or option agreements. The land package covers ~30,000 hectares, and it is situated c. 60km northeast of the Key Lake mill and 75km southeast of McArthur River. Hook is right on the edge of the Athabasca Basin. It is clearly the secondary priority for Baselode Energy, and very little work has been done on it at this point.

Athabasca 2.0

So, why does Sykes have this conventional methodology? What is the rationale behind it? Baselode Energy claims that Athabasca 2.0 has numerous advantages over the Athabasca Basin that make it a more attractive prospect for institutional investors and potential strategic partners.

Strictly speaking, Athabasca 2.0 is meant to refer to the kinds of deposits that Baselode Energy has acquired.  Shadow and Hook are both basement-hosted uranium deposits, which are different from their Athabasca-based peers with ‘conventional unconformity-type deposits in the basin.’ So, what does this all mean if we unpack it?

Alleged Advantages of Basement-Hosted Deposits over Athabasca Basin Deposits

  • Simpler geology
  • More ‘competent’ rock
  • Easy mineability
  • Examples: Arrow, Rabbit Lake, Eagle Point

It is interesting to note that Arrow is also a basement-hosted deposit, so did Sykes learn this secret there?

Alleged Main Issues Associated with Unconformity-Type Deposits

  • Complex geology
  • Incompetent rock
  • Mining engineering challenges
  • Deeper mines require freezing
  • High CAPEX
  • Examples:   McArthur River, Cigar Lake

For those that aren’t geological experts (like me), in geology, competence refers to the degree of resistance of rocks to deformation or flow. In mining, ‘competent rocks’ are those in which an unsupported opening can be made.

There is clearly a rationale behind this thesis, and we have been keen to get some Athabasca-based uranium companies on the show to get their take on things; none have been forthcoming yet, but we hope this changes in the near future because we’d love to get a well-rounded understanding of this issue. Do you think these are genuine and meaningful observations, or is this just another uranium CEO talking his playbook and aggressively marketing?

The Athabasca Basin has always been the king of uranium deposits, and even Baselode Energy acknowledges this. It is fully aware that the high-grade deposits in the Athabasca are much lower-cost operations compared to alternative jurisdictions, and it is also aware that the average grade is ~3.95% U3O8, while the rest of the world averages ~0.15%. However, it believes Athabasca 2.0 is even better.

Investors should also remember the extremely protracted permitting timelines for Athabasca-based projects. However, Sykes claims he isn’t worried about permitting, which is one hell of a statement to make in Canada! He thinks the reason for these timetables is because these projects are being discovered at-depth underneath sandstone or they are close to big lakes with drainage systems that concern First Nations decision making. Will Baselode Energy’s “uniquely-situated” shallow deposits have better luck?

This image has an empty alt attribute; its file name is company-profile-ad-copy-1024x115.jpg

Sykes has been determined from day 1 to seek out uranium deposits that have a real possibility of becoming a mine, and he sees to think he has cracked it. Will the government take a look at Baselode Energy and see it as a project to throw support behind? Sykes makes a really bold claim: “any company that is exploring within this sandstone itself, if you are deeper than 100m sandstone cover, it is going to be challenging for anyone to move those into a mine.” I can’t what to hear what some of the other uranium juniors have to say about this!

Baselode Energy currently has around C$500,000-$700,000 in the treasury which should be “sufficient” to get the company’s exploration programme started. An airborne survey at Shadow is up first. However, it is obviously going to need to raise capital soon. In September, the company will look to raise C$1.5-2M, maybe even more, but it is keeping it quite tight. The corporate structure is also quite tight.

Sykes has invested around C$50,000 of his own money into the company, which isn’t particularly significant. He also states that “we’ll see” when we ask if he will buy shares on the open market once the ball is rolling. That’s not encouraging, though Sykes reputation may redeem him somewhat.

What did you make of James Sykes and Baselode Energy? Is the Athabasca Basin 2.0 an area you will be investing in? Comment below and we will respond.

Company Website: https://baselode.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.

Brandon Munro #18 – 3 Reasons Why Cameco Restarts Uranium Production Now (Transcript)

Bannerman Resources Ltd.
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price A$0.035 (16.07.2020)
  • Market Cap: A$37.06M

Uranium Market Commentator & Bannerman Resources (ASX: BMN)

CEO, Brandon Munro, calls in for our weekly catch up about the world of Uranium and Uranium investing.

Cameco’s quarterly call stuns market with some of its decisions. Have they lost the opportunity to drive the spot price up? We discuss the implications for investors and also for uranium juniors. We now wait for the KazAtomProm quarterly on 3rd August. We focus on the restart of Cigar Lake and reasons why they may have made those decisions and how it may affect partnerships elsewhere.

We Discuss:

  1. 2:53 – Opinions on Cameco’s Announcement
  2. 8:22 – Market Reaction: Implications on Utilities
  3. 9:57 – Reasons for Reopening Cigar Lake
  4. 13:23 – Buying at Spot Price: What’s Going On?
  5. 16:29 – Conversion Market Transition
  6. 18:06 – Final Thoughts

CLICK HERE to watch the full interview.

Matthew Gordon: Brandon Munro. How are you, sir?

Brandon Munro: I’m really well. Thanks, Matt. What about yourself?

Matthew Gordon: Good week, . A lot of new things happening here. So, we are rearranging the deck chairs a little bit. A few new people on board, so it’s all good. Looking forward to the weekend actually; a bit of good weather, barbecue, a bit of wine. It would be good to get the nice stuff out. That’s the plan.

Brandon Munro: You deserve it. You’ve been doing so much with your business, and just the responses and the comments that you’re getting are epic.  you can reach high on the shelf with this one for your barbecue.

Matthew Gordon: Very high, very high, Brandon.

Brandon Munro: And do you need to get that in writing from your wife, for permission?

Matthew Gordon: If you’re insinuating that I don’t wear the trousers around this house, you would be perfectly correct. Instead, let’s talk about what has happened in the world of Uranium this week. So, big thing of this week was the Cameco quarterly call – a lot discussed, but there was one topic at the top of everyone’s minds, and  the prices that we saw in the market afterwards would tell us that people had a strong view as to what the impact of that might be. I’m talking clearly about the restart of Cigar Lake. What was your take on that?

Brandon Munro First of all, for anyone who missed the call, Cameco have announced that they plan to restart mining at Cigar Lake. They believe they can initiate that fairly quickly. All of their staff are still on full pay so getting them back is really just a case of logistics and managing it all safely. They started that at the beginning of September. They would expect to be in production by mid-September for example, after doing a little bit of maintenance work after that period that it has been off. The market didn’t seem to like it very much. On the one hand that’s not surprising because the average Uranium punter would have preferred to see Cigar Lake off for a lot longer and a lot more pounds suppressed or sequestered from the market.  we just need to remember something: they initially announced that Cigar Lake would be temporarily suspended for four weeks and it’s going to be down for the best part of 6-months. It’s more than a Uranium investor could possibly ever have wished for at the beginning of the year. Some of the commentary being unduly critical of Cameco is just misplaced.

Matthew Gordon: There is frustration there, because this was seen by many as an opportunity to actually drive this price discovery in the marketplace.  it is born out of frustration, not necessarily anger at the management team, but just the perceived missed opportunity.  there’s a little bit of that. And they, as we saw a lot of red in the market yesterday with prices even Cameco was down as much as 17% yesterday. But it is a short-term reaction, possibly quite a good buying opportunity. But what else were they able to say about this restart? Because, it’s not just about restarting in September, it’s the rate at which they are able to do so – any thoughts on that?

Brandon Munro: The first thing is, they didn’t portray this as an absolute certainty. It’s a plan. It’s what they would like to do. It’s what they’re working towards doing, but it is still subject to it being safe to do so. And Tim Gitzell really emphasised that the safety of the employees, their families, the communities, and the country at large comes first. Interestingly, it’s also subject to some consultation with the community leaders in Northern Saskatchewan, and ordinarily you’d think, well, gee, that’s a bit of a lottery, what’s going to happen there? But Cameco is very measured with this type of thing and they’re quite conservative, so I don’t believe that you can jump to any great conclusions or expectations that that’s going to be a blocker. Unless Cameco felt very solid in their relationship with those parties and how they think they would react

I don’t really see that being a likely cause of a delay. Now in terms of how they’ll bring it back on, this is an underground mine. It’s quite conventional in general terms; it’s highly robotic, et cetera, et cetera, but it’s still an underground mine that is designed to be operated at full tilt. And full tilt, from their numbers, is exactly how they plan to do it. When you take their numbers and do a little bit of calculation, they’re looking to generate 5.6Mlbs between when they turn it back on and the end of the year. So that is running it at full steam. Probably working a little bit of stockpiles through to get a bit of a hit at the beginning as well.

The final thing that I’d say about it, that was quite interesting is Tim Gitzell flagged that there was a good chance it could impact 2021 production from Cigar Lake, and he pointed to defer development decisions. We can’t just assume that it’s going to be up to its 18Mlbs capacity next year. There’s a good chance that both in Kazakhstan, but also with this enormous Uranium mine in Canada, that we’ll see some a hangover into 2021 from this production disruption, assuming that they do manage to get it all started and operating effectively this year.

Matthew Gordon: Great point. I want to come back to what people infer from this, investors, retail investors infer from this. People selling off yesterday, they thought that there’s an opportunity for Cameco to sweep up any loose pounds in the marketplace. Likewise, with KazAtomProm, and that would give them the price discovery, which would then lead to hopefully some gains on the stock markets for them. So that was the big hope that even if they go full tilt from September, they’re not playing catch up on the lost pounds this year. But what do you think is going to be the reaction in the marketplace as far as utility buyers are concerned? Does this give utility buyers a bit more breathing room, or they don’t care? They are still focused on their own problems elsewhere.

Brandon Munro: It’s more of the latter. I don’t think you’ll see this significantly change the behaviour of utility buyers one way or another. Interestingly, one thing that it might well do is give utility buyers that little bit more incentive to be talking to Cameco. They now know that if they are contracting with Cameco, it’s coming from produced pounds, not purchased pounds, and there might be a little bit of that that came into Cameco’s thinking with the timing and the decision to restart. But as we’ve discussed a few times, the utilities are not in the discretionary mode where they’re waking up and deciding what do I choose to focus on today? They are fighting bush fires at the moment and this won’t really make a big difference to that. If anything, it’ll just give them that little bit more confidence that they know what’s going on. And that they don’t have too many moving parts in this whole equation at the moment.

Matthew Gordon: Let’s look at Cameco’s reasons for restarting now. Why do you think they made this announcement now?

Brandon Munro: They’re motivated by a few things.

The first one is, and we discussed this many times over the last few months, when you were posing some of the thoughts from the punters out there that Cameco would be making this move to try and force prices. I believe that Cameco makes their decisions for the right reasons. And I believe that this decision has been made by Cameco, primarily in the interests of the community, its employees, the country at large was pointed to. And you can take that on face value with Cameco – they are just that company.

The second reason is clearly financial. It’s costing them USD$8M to USD$10M a month in care & maintenance. They still have all of their employees on full pay, waiting to return to work. They haven’t been able to mitigate the expenses of this very well. And when you’ve got a plant and a mine like this that’s ready to spring back into action you need to keep everything oiled and looking shiny and that is an expensive process. They also pointed to the fact that they are buying now in the spot market well above the cost that they can produce. There’s a margin game to be had by introducing produced pounds rather than continuing to buy.

And the third reason, and I don’t have anything to go on here except perhaps a little bit of instinct, but I just wonder if they have got deep concerns about the reliability of production out of Kazakhstan? If you put yourself in Cameco’s situation, or imagine sitting on the board of Cameco right now from a governance point of view, and you would be asking the CEO, can you guarantee that by the end of this year, we will have primary produced pounds to sell in to our customer contracts, or is there a chance we will be entirely exposed to the market?

And number 1. it’s a joint venture, Inkai, so they are not the operator.

Number 2. it’s a long way away in Kazakhstan.

And number 3. as we’ve been talking about, things are not too rosy in Kazakhstan with its management of COVID.

I would expect part of their decision making may be, we need to have control of primary produced pounds as a fundamental risk management lever given that we are the second biggest player in this market and given that we’ve got such a large volume of pounds under contract. It’s those things. And when you start to think through those 3 different factors, I don’t think you can blame them for making a decision to not hold off pounds and try and force a little bit more inventory out of the market, et cetera, et cetera. It seems fairly clear to me that their decision-making is sound.

Matthew Gordon: I would agree with you about doing the right thing. I hadn’t appreciated the scale of the losses on a monthly basis. They have obviously done their numbers. They have worked out the arbitrage in producing, not producing, buying in the market, producing their own, etc, versus what they price may do going forward. Because they have done a few things which may inform that, such as the spot buying. The spot buying that they have done in Q1 v Q2. Maybe you want to elaborate on what’s been going on?

Brandon Munro: When you look at the numbers, they purchased roughly 4.5Mlbs in the first quarter in the spot market. And then with the disruption, they obviously realised that they needed to do some fairly serious risk mitigation and also chase some of the cheaper pounds before it started to form a new base or a new floor. In this quarter, it’s been effectively tripled: 14.5Mlbs or thereabouts. They have really got after it in the last quarter in the spot market and flagged that they will continue buying throughout the year, and if need be, they’ll start buying for 2021 deliveries as well. They’re indicating that they are prepared to use this big balance sheet they have got to build inventories if necessary. And I would expect the necessary means that production doesn’t return this year.

Matthew Gordon: Do you think that had any effect on the price gains on the spot market that we saw in early Q2/20, and was it enough to move the dial? And if so, what type of buying were they doing that it didn’t affect pricing in Q3/20?

Brandon Munro: That’s a good question, because we have talked about the plateau. And in fact, that was one of the analyst questions that was posed to Grant Isaac, what’s going on with this plateau? And it seems like there’s lots of people talking about it from his reaction. The buying that Cameco would have done initially would have been measured and careful, even though we saw a big spot price lurch, they would have been mitigating their own risks enough that they wouldn’t have wanted to sponsor that in any way, or to try and exacerbate that spot price lurch. There was a lot of volume done early, so that was early steps taken, and I’m sure Cameco was a large part of that. And the other thing is that there were many references made by Grant and even one by Tim, which was along the lines of, we felt very lucky to have accessed those pounds. When they were talking about buying pounds, either in the spot market or directly from other players, they reiterated that they were surprised at the pounds were available, that they were very fortunate to have been able to get those pounds and so on. And they’re not the type of company that that tries to gild the lily here or gold plate things.  what they’re trying to say is they didn’t expect those pounds to be so easily available and they’re pleased that they are, but they’re not sure that those pounds are going to be particularly available going forward.

Matthew Gordon: That’s informing the decision as to when they get back into production. They also talked about the conversion market transition, not saving the day, but certainly helping a lot. Is that something we can look to see more of going forward?

Brandon Munro: That division has certainly been profitable for them, which has helped them a lot to weather some of this and given them a lot more financial stability. Conversion is a complex topic, as we have talked about before, and they talked a lot about the arbitrage between Cameco-delivered pounds and Comerex, or US-delivered pounds. And the closure of Metropolis Works’ conversion facilities played a huge role in that. I didn’t get any clear indications from the call as to how they saw conversion playing out one way or another. What is clear is that utilities need to be bringing material all the way through the nuclear fuel cycle to generate demand for conversion. If they are still wearing off or working off their EUP, their enriched Uranium product and their advanced fabricated fuels, then they’re not going to be putting a lot of pressure on the conversion market. Cameco understand that stuff really well so they’re probably, they have got that part of the market measure and they’re thinking clearly about it.

Matthew Gordon: Your view of the quarterly call: measured as ever? I’m not sure it gave confidence to the marketplace, but have they have made the right decisions, for the right reasons?

Brandon Munro Yes. I’d say so. It was somewhat subdued compared to the last call if you had listened carefully to the tone. And again, that’s understandable. They would have known that the message wouldn’t have been well-appreciated by everybody. There would have been an element of reticence to delivering that message. And also, they are not coming off a quarter of growing Uranium prices like they were the last couple of quarters. So overall, not surprising. Somewhat subdued, but certainly not a trigger for the selloff that we’ve seen. I’d agree with you; for people who are accumulating Cameco, they would have been rubbing their hands with glee yesterday.

Matthew Gordon: It’s time to move into the Crux Investor club members section. I’m going to say, thank you very much for listening today. I hope you enjoyed Brandon’s views on the Cameco quarterly call and the interpretation that he has given us. We are not going to move and talk about a few other topics – quite interesting in terms of what is going on in the market, with our club members, so we’ll see you again next week.

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.

Bannerman Resources (ASX: BMN) – Uranium Player Reduces Scale and Transforms Value Proposition (Transcript)

Bannerman Resources Ltd
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (06.05.2020)
  • Market Cap: A$43M

Interview with Brandon Munro, CEO of Uranium Developer, Bannerman Resources (ASX:BMN)


Bannerman Resources is a uranium junior with a large uranium project in Namibia called Etango. The big sticking point for Etango has always been the large CAPEX: US$780M indicated in their DFS and the Africa factor.

However, today’s scoping study could well go some way towards changing that sentiment. The scale of the project has been much reduced; the CAPEX is now down to just US$254M. This is now a much more manageable project and their optionality around financing has been enhanced. Bannerman Resources now has the optionality to turn this uranium project into a reality in a variety of ways.

A new PFS and DFS are now on the horizon and should follow in around 18-months. Bannerman Resources could now be primed to time its entry into the next cycle perfectly.

We discuss:

  1. 2:36 – Company Overview
  2. 3:49 – Scoping Study Results: Why Did it Take So Long?
  3. 7:25 – What They Had vs What’s Possible Now: A Look at the Numbers
  4. 11:33 – 3.5M pounds vs 5 or 2: Discussions and Decisions
  5. 14:04 – Options for Financing it: Cost Drop to $65
  6. 21:13 – Middle East Becoming a Player in Uranium: Benefits and Concerns
  7. 23:17 – Still to Come: Speed, Process, Risks, Costs
  8. 32:03 – Market’s Reaction: Does Anyone Care, Should They?
  9. 34:39 – Mitigating Board Concerns and Issues
  10. 36:53 – Timing it Perfectly: How Do They Know?
  11. 39:58 – Sneak Peak to #19 of the Uranium Series with Brandon

CLICK HERE to watch the full interview.

Matthew Gordon: Brandon Munro, how are you, sir?

Brandon Munro: I’m really well. How are you, Matt?

Matthew Gordon: Saw the announcement this morning – some good numbers on there. But before we dive into that, can you just for people new coming into the Uranium space and looking at various Uranium stories, it might be worth giving a one-minute overview of your project. Then I want to talk in detail about your Scoping Studying numbers.

Brandon Munro: We are Bannerman Resources. We are listed on the ASX. Our project is the Etango project in Namibia. We’ve been focused on Uranium since 2006, and the project has been subjected all the way through Feasibility to a DFS and then even a pilot plant. But as we’re about to discuss, we’ve now gone back to the future in terms of a Scoping Study with the Etango 8 project. It has got environmental and social permitting. We love operating in Namibia and we are quite active in the nuclear sector as well, which helps us a lot when it comes to talking about how to understand this sector, how to market to it and how to build a project in an industry that can be quite complex.

Matthew Gordon: We’ve noticed you have a DFS from 2015. Huge CAPEX, and I think that was a problem for the marketplace. People thought this is too much money to raise, and there’s only going to be a few options available to you in terms of funding. I think that was a concern. You have addressed it with this new Scoping Study, well, I think that’s what you’re trying to do. So maybe if you could explain why you’ve changed things up a bit.

Brandon Munro: Yes. It was a problem for the market, for the stock exchange market, investor market. And we have, like all of our peers in this deep Uranium bear market, we have had a diminishing market capitalisation. And when you apply as typical metric against the capital costs, which in our 2015 DFS was USD$793M, you end up with an equation that requires some fairly significant financial steps to be taken. Now having said that, I would say in our defence that for this sector, for the Uranium sector and the nuclear energy sector, these are still relatively small numbers. You have got to remember that the number of reactors that our project could service at those numbers had a construction cost well north of USD$80Bn. But be that as it may, we are not servicing reactors at the moment. We are striving to add shareholder value. And for some time now, we have been looking at what we can do with this project to get an initial or a start-up scale with a much lower capital hurdle that gets us into business. And then depending on how the market progresses from there, we are in a position to either continue at that level for a long mine life, or we have got the option of adding another train and increasing the scale of our production to take advantage of a greater proportion of this enormous ore body that we’ve got at Etango in Namibia.

Matthew Gordon: You have listened to the market, that’s clear, but why did it take so long? The DFS was from 2015. It’s 5-years later that you are now coming out with these smaller numbers. Why so slow?

Brandon Munro: Yes, that’s a fair comment. So there are a couple of things to think about: first of all, when the DFS was scoped out, so we did release our initial DFS in 2012, when that was scoped out, it was pre-Fukushima, and this sector was enjoying the nuclear renaissance, it was crying out for pounds. The 7.2Mlbs p/a average production rate for that large project was entirely appropriate and certainly a competitive advantage. Then the market took some time to react to Fukushima. It took some time to be obvious what the demand destruction had been there and for that recovery to take place. But also, we need to remember that there has been a number of technology enablers for us to be able to do what we’ve done here. Back in 2012, we didn’t have the nanofiltration and membrane options that we’ve managed to incorporate into this project. That has dramatically improved our recoveries and it has also improved our reagent usage and really decreased our acid use. We needed those wins to be able to dial back the project to a much smaller scale whilst maintaining robust economics. And look, the other thing that I’d just say about this is, there was a lot of scaling work done including projects that were underway when I came into this role in 2016, but it was only when we really dialled it back significantly that we stayed within a pit shell configuration that really dropped the stripping ratio down to a point where we could do what we’ve been able to do with this Scoping Study.

Matthew Gordon: Give us some of those other numbers. In terms of being able to do some comparables from what you had, which I assume is still an option, but you are parking it up in favour of this new Scoping Study, this new direction, but can you help us with the comparison of what you could do versus what you are now going to aim to do?

Brandon Munro: Sure. And look, let’s come back to that question about what the giant project is still for us and what options that gives us, because I really do think that that’s important for shareholders and investors to understand. First of all, on CAPEX: the 2015 DFS optimisation study came out with a CAPEX number of USD$793M. What we have here is a project that we’ve called Etango 8. We’ll be calling it Etango 8 from now on. And that refers to the throughput that’s going through the mill. The giant project was 20M tons p/a through the mill or the processing plant. Etango 8 is 8Mt p/a. In other words, we’re putting only 40% of the material through the mill that we would otherwise, but because we get a little bit of a kick in grade, we are operating for the first 50Mlbs in slightly higher grade, so we get a 20% kick. In actual fact, we operate at a 40% throughput, but we get about 50% of the production, so 3.5Mlbs p/a.

So, back to capital costs: USD$793M in 2015, we have now got half of the production, but we brought that capital all the way down to USD$254M as a pre-production capital number. And not only that, but the sustaining capital has been reduced dramatically by about USD$250M over the life of that mine. Our All In Sustaining Costs have come down significantly as well.

One thing that’s very important is, quite often with a big project like this, you can simply do a trade-off. You can trade your upfront capital for increased operating costs. And we’re very proud to say that we haven’t needed to do that. The cash costs have remained pretty much exactly where they were at circa USD$37/lbs. And the All in Sustaining Costs is just a smidge over USD$40/lbs. At the moment it is USD$40.90/lbs, which are very comparable with what we had back in 2015.

The total throughput, or the total proposed mine over the life of mine is 51M lbs. And that compares with 113Mlbs under the 2015 DFS. But of course, those pounds aren’t going anywhere so that is one of the things that just gives us so much optionality going forward once we see just how deep this market deficit is and what that ultimately does for pricing.

In terms of what our pinch points are, when we did the 2015 Optimisation Study, we assumed a price of USD$75/lbs. In this case, we have been able to assume a price of USD$65 p/lb and still end up with an attractive NPV. At that level it’s USD$212M. It’s still a very significant premium over our current market cap, which before we started trading today, sits at circa USD$30M. There’s still a lot of room for investors to enjoy our progress as we progress this project.

Matthew Gordon: I don’t want to get into a macro discussion with you, because, the price today is at USD$32/lbs or thereabouts. You are talking about USD$65/lbs. We’re a long way from that, but you and I on a weekly basis, talk about the macro coming. I’m going to park that for this conversation if I may, or maybe we’ll pick up on it on the end. Just to help me understand the decision-making that’s going on at board level, because it’s an optimisation process that you have gone through, and so why is it 3.5Mlbs you’ve settled on p/a versus 5Mlbs or 2Mlbs? What was the thinking? What was the discussion around that?

Brandon Munro: Well, initially we dropped the production throughput dramatically down to 5Mlbs. As I said, we had done previous exercises in testing reductions in throughputs down from 20Mlbs per annum, where we started in 2015, down to 15Mlbs and 10Mlbs, and by looking at things differently, we said, what if we stay within a very low strip ratio zone of the ore body, because our ore body does outcrop. We get a nice win in the early years. And we reduced it all the way down to 5Mt p/a and saw some very promising results there that gave us the confirmation that, yes, this is a viable alternative to invest further in. And then what we did is basically pitch our optimisation. We worked with AMEC Consultants, who are very, very talented mining engineers out of Namibia. They have done a lot of the work for Rossing and others, and they ran the different pit shells and optimise the NPV at 8Mt p/a. And from there, we just had to cross test against various tolerances such as what impact does that throughput have on external infrastructure, et cetera, et cetera. And we came back very comfortable that that was both the right economic number for the pit. It was the right economic number for water and power and other things that we were looking to get a win on by reducing our demand and also the perfect number for the market – 3.5Mlbs, I think is an ideal number for the market, as we can predict and understand it over the next 3, 4, 5-years.

Matthew Gordon: That’s another interesting point, and perhaps one for another day in terms of how you quantify how many lbs you’re going to be able to sell into market. We have looked and studied; some companies are predicting much higher numbers from scratch, having never produced before and getting that into market. So, as you say, I think that is a conversation for another day, but what I’m surprised you didn’t mention there was part of the factor being what you thought you could get financed, because with a lower CAPEX, I’m assuming you are opening up your options. People have always thought USD$800M – that has got to be the Chinese. That’s the only way you’re going to get financed. And they are looking to hear you talk about relationships with Chinese groups, which you have intimated, but at these sorts of levels, what other doors do you open?

Brandon Munro: Well you’re right: the Chinese option, if I can put it that way, certainly is very valid. I mean, we’ve talked at length about how China’s demand for Uranium going forward is absolutely voracious. Whether they are a financier, whether they are an offtake partner, whether they are a customer, whether they are a joint venture, all of those options still remain equally valid here. But as you point out, Matt, we do now have many other options. There are vertical integration-style options into a variety of different players that perhaps we couldn’t have achieved at 7.2Mlbs p/a because we were just too big to vertically integrate into a nuclear power business. Whereas now at 3.5Mlbs, that services say, 8 or 9 1Gw reactors per annum. There are many players who have a fleet of that size, or intentions, or plans to create a fleet of that size who could then look at us as being a large part of their solution for future security of supply, in whole or in part.

It also makes us attractive from a conventional financing perspective. At USD$65/lbs, we’ve got an IRR that’s in the 20s. Before, at 2015, we would hit 15% IRR at a USD$75/lbs price assumption. We have now got something that looks a lot more robust, not only in terms of the absolute amount of capital required if we would go to conventional financing, but also in terms of the returns that we can offer investors down that path. And because of the optionality that we’ve got with the bigger project, it opens a number of different strategic options for us to start looking at other assets, and when we start to see this whole sector move more into a consolidation phase, we have now effectively got two approaches to offer when it comes to a consolidation. We have got a 3.5Mlbs production project that’s got low CAPEX, relatively low CAPEX hurdles, environmentally approved, and all of that sitting in Namibia exactly where you’d want it, but there’s also still the giant that’s sitting there. It’s got a DFS, it’s got a pilot plant. No-one can take that away from us. All of the pounds of there; there are still 271M lbs Uranium sitting there in the resource, and we can now work up the 3.5Mlb project – Etango 8 through PFS, DFS, all the while keeping a very keen eye on the market. And if the market does what certainly I hope it will and most Uranium investors do well then that giant size project is still going to be very much a viable alternative, and it really comes down to what market sizing do we want to offer.

So I think that breadth of possibilities, including the lower hurdle to get into production with Etango 8 creates a, a multitude of opportunities for us: to build the project ourselves realistically, to conventionally finance it with offtake arrangements through to other arrangements, including consolidations, peer mergers, vertical integrations, soft debt, and financing. I really feel like we’ve now got all of that in front of us, and very much looking forward to seeing how the market plays out as to which of those are going to deliver the best shareholder value

Matthew Gordon: You have reduced the price of Uranium in your calculations from USD$75 to USD$65. Where has the confidence come from to do that?

Brandon Munro: Well, we’ve done that really just to demonstrate that the hurdles for getting into production are significantly decreased. It’s not about my level of confidence for this market by USD$10/lbs. It’s rather being able to demonstrate that we can produce a 20%+ IRR and a 200M-od NPV at USD$65/lbs. Of course, at USD$75/lbs it looks even better and at USD$80/lbs, we would probably start thinking about the bigger project because of the extreme leverage that we get from that. And look, USD$65/lbs is very consistent with many of the guests that I’ve seen you talking about. That seems to be a well-accepted number on the production side. And I can tell you, when you have closed-door discussions with utilities, you don’t get any eyebrow raising at USD$65 either. It is a distance from where we are at the moment, and you get people on Twitter, YouTube in private conversations, who might say, well, look, where are you going to be at USD$55/lbs? What happens? But what investors need to understand is that there is no single clearing price when it comes to term contracts. Utilities will operate within a band. They’ll have a whole portfolio of contracts, some of which will be below USD$55/lbs, some will be above USD$65/lbs, and they need that band to achieve enough fuel to go through their reactors. So this concept of us sitting at USD$55/lbs, for example, for some time well, that’ll be great for 60% of the market because Cameco can happily produce into that, and KazAtomProm can happily produce into that, but where is the other 40% of the market is going to come from as we start to see this this deep depletion of supply from 2024, 2025? So, we will be there. We will be there waiting for that. And if we do see a situation where it’s still USD$55/lbs, we know that we will have utilities banging down our door very soon after that, as they realise that that theoretical number of USD$55/lbs only fills their reactors with 60% of the fuel that they need. And at that point, because of the dynamics with nuclear fuel being still only a fairly small proportion of the cost of producing nuclear power, they will have to come to the market at whatever cost is required, because it’s not a very happy situation to run a reactor at only 60% of the fuel that it needs.

Matthew Gordon: That is a consistent story. We are hearing that number from the US Uranium producers. We are hearing that from the Canadians, we’re hearing that across the board. It will be interesting for me as an investor to see how quickly that price discovery comes. But yes, I buy your argument.

The Middle East is becoming a bit of a player now, and being in Africa, and we have seen in other sectors, groups in the Middle East coming down into Africa for like food security, food supply and other mineral resources. Is that a reasonable likelihood? Is that a conversation you could have, or does that put you at a disadvantage when talking to US utilities?

Brandon Munro: It certainly is an interesting part of the sector, for the Uranium sector generally, but also this type of financing. It’s well known that Middle Eastern groups have got very deep pockets. It’s also quite well understood that they are looking to transition away from a dependency on hydrocarbons. And we’ve seen that both through the Emirates program at Barraca, where the South Koreans have completed their first reactor and there, they’ll install 5.6Gw there at Baraca. We’ve also seen it in Saudi Arabia, for example, where they’ve announced plans to construct a nuclear fleet over the next decade, of 17 reactors. A lot of that’s driven by the desire to install nuclear power for desalination purposes, which of course, in that environment dramatically opens up a whole number of facets of their society in their industry.

So, what we can offer either to middle Eastern groups, as customers, to Middle Eastern groups as offtake partners, or potentially as financing solutions, is this capacity to deliver 3.5Mlbs, support 8, 9 reactors. Or if you look at it another way, it can support a reactive demand for 2.5M lbs plus slowly build-up inventory. That, with the African connection that you’ve just identified, I think is a very powerful option for us and something that will make those conversations quite interesting when it’s time to have them.

Matthew Gordon: This is just a Scoping Study. You need to do a PFS, you need to do a DFS. And if I follow your line of argument with regards to market recovering because the supply and demand story that we’ve talked about on numerous occasions, you’re going to need to get a move on. How quickly can you deliver that? What is the process that you are envisaging?

Brandon Munro: We have really got an advantage here, because we’ve beaten this path. We’ve constructed the broad highway, which is a DFS with all of that cost and expense and resources, and now we just need to lay a little bit of a one-lane next door to it with this Scoping Study. So really what that means in practice: if you look at the cost, the risk in terms of blow out of budget or timeframes to move from Scoping Study to PFS, and also where the technical risk or the failure risk lies, the key things are first of all, number 1- the risk associated with the ore body and the requirement for resource drilling. We don’t have that. We have drilled 360,000m into an Etango, so there’s no more drilling that’s going to be required.

The next big risk factor, particularly in a Uranium projects is metallurgy. Again, there’s nothing more that we can do in metallurgy. We have had a demo plant, a pilot plant operating for 3-years. And the final risk factors environmental. Normally at this point, you’ve completed your Scoping Study. You’re moving towards a PFS. It’s about starting to get your baseline together, starting to think about how you’re going to obtain environmental approvals. Now, we’ve got the environmental and social approvals already in place for a much bigger impact project, so that’s not an issue either. We feel that we can move through a PFS in a very quick timeframe for what is still a very big project at 3.5Mlbs. We think we can get that done in about nine months. And although we haven’t yet appointed the consultants that we want to use for the PFS, we think that we can get one done for very good value for such a big project.

We want to go with top shelf, high calibre consultants so that this outcome and this product very much sits alongside the high-quality technical work that’s already been done since 2006 at Etango. And we don’t see why we can’t get all of that done for AUD$1M. So that means that with our cash balance, we’re still in a very strong position here to move it forward. And to answer your question more directly, we’re ready to get on with it. We’re ready to get hopping here. We think that we can time this project perfectly for when the market is going to be crying out for 3.5Mlbs.

Matthew Gordon: Tell me a bit about that: so it’s going to be 9-months to deliver the PFS from when you appoint your consultants. You must have a view then as to when you think the market is going to recover, to be able to say, we’re going to time this perfectly, because after you do a PFS, you’ve got more studies to fund. How are you going to do that? Or are you going to leave that until further down the line to try and work out when you think the market will be a little bit better?

Brandon Munro: Yes, we have got 9-months of PFS, and we anticipate that a DFS would take about another 9-months. And realistically, you’re not going to be marketing with any certainty to utilities until you are towards the end of the DFS process. You can’t really commit to long-term contracts until you’ve got that level of certainty, even with all the advantages that we’ve got. I would say that’s the timeframe, and fast-forward 9 to 12-months from here with all the macro dynamics that we’ve been talking about and the huge gaping deficits that we’re seeing open up in this sector, that’ll be perfect timing, not only for making the decision to progress to DFS, but also in terms of having those conversations with utilities.

Matthew Gordon: You’ve got a PFS coming. It’s going to cost you around AUD$1M. And to do a DFS, what’s that going to cost you? How much cash have you got left today? And are you going to need to raise capital in the market to get that over the line?

Brandon Munro: Well, at the moment we closed 30 June with AUD$4.2M. So, obviously, if we spend, let’s call it $1M on the PFS, we’ve still got more than AUD$3M. For the last 12 months we burned through a smidge over $2M. We’re running at $500,000 per quarter cash burn, including the project work. We’ve been able to get the Scoping Study done and all of the other optimisation work, run the demonstration plant, complete the membrane test, work to a DFS level. We have been able to achieve all of that within a $500,000 per quarter cash burn. We’re pretty tight.

You can extrapolate from that, that after deducting AUD1Ms for the PFS, we have still got more than a year of runway. And from there, we can look at what the market looks like and decide at what pace and, whether we are prepared to use existing cash reserves to fund a DFS, or if we need to go back to the market for that. But I think the key point is, we don’t need to raise anytime soon. We’re not under duress to raise in a flat market, as we’re seeing at the moment, and we’re going to be able to put out some good numbers before we need to think about using cash balances versus raising fresh equity to progress the project,

Matthew Gordon: Looking at this Scoping Study. It’s early stage. What I need to believe is that these are accurate as can be, and you’ll get more and more accurate the more work you do through the PFS and DFS. But, you are going to market with a pretty big claim here. How have you managed to, for instance, keep the capital cost and the operating cost down like this, because it seems to me the bulk tonnage operation, the economics should change?

Brandon Munro: So there’s a couple of things to say about that: the first one is it is a big change in capital. It’s $793M down to $254M. It’s a much greater than proportionate drop in capital, but there are some good reasons for that. First of all, of course, the throughput is 40%, not 50%. The output is 50% because we get a kick in grade, but the throughput is 40%. So immediately that’s going to reduce certain capital items. But the big win for us has been the capacity to move from owner mining, to contract mining. So that has reduced over USD$100M of pre-production capital because we don’t need to buy the fleet, and we have taken USD$250M out of sustaining capital over the life of mine because we don’t need to service and replace the fleet and so on. So that has punched a big hole in our CAPEX.

Another one is, because we were under the DFS operating at such a large scale, a number of the aspects of that scale required a special solution. The best example is the heap leaching. We had what’s called a racetrack heap leach system, which is used in enormous copper mines in South America and elsewhere in the world. But there’s quite a lot of kit involved for that. Now because it’s a much smaller throughput, we can go for a more conventional stacking of our heaps and that’s taken circa USD$80M out of the infrastructure bill that we have got.

There are a few other things that start to add up: because our power requirements are less, we don’t need to build a substation. We can just run a line from the existing power infrastructure that is around the corner. There are other things like that.

And then the final thing is that we have been working hard on this project since 2015, and there’s a number of smaller wins that we’ve had that just add up and accumulate. For example, what we released in the processing optimisation study in 2017, we’ve been working on the membrane study, so we’ve now moved from SX, solvent extraction, to iron exchange with nanofiltration. All of those things start to punch small holes in capital that then add up. When you start to run down the list of where we’ve had those capital wins, bearing in mind that we’ve punched a huge hole through switching from owner mining to contract mining, I think we have presented very credible numbers.

Matthew Gordon: How do you think the market is going to react to this story? Do you think the market cares?

Brandon Munro: I think it will care. I definitely think it will care. This is fantastic news for Bannerman. It might take a little bit of explaining. It might take some time for the market to fully react, but we need to look at what has happened here: Bannerman has been regarded as an out-of-the-money option on a very, very big project for quite some time. And now what we’ve done is we’ve retained all of the advantages of that very, very large-scale project and what it can offer strategically to multiple parties in this sector, and delivered in the Scoping Study phase an attractive developable project that still has significant size compared to our peers. It is still amongst the largest development projects out there that can produce within a few years in a jurisdiction where we’ve already got environmental and social permitting. and socially, politically, and environmentally, they are very comfortable with Uranium mining. I certainly think the market should care. We can have a chat in a couple of weeks’ time and just see how much it does, but I’m excited about this. And I’ll be very surprised if the market, with a bit of time to explain what we’re on about here, I’ll be very surprised if the market doesn’t get excited behind us as well.

Matthew Gordon: But it doesn’t have the sex and the sizzle of the Athabasca basin; it’s Africa. I think that’s something that’s thrown at you guys a lot. How do you respond to that?

Brandon Munro: We are going to be producing pounds before the Athabasca Basin, so you can have all the sex and the sizzle, but if you’re looking through a bulletproof window at that sexy, sizzling project, then it doesn’t do you any good.

Matthew Gordon: What do you mean by that?

Brandon Munro: Well, you need to be able to step through and produce pounds, environmentally, socially, and politically. And in Namibia, we can do that. We can do that. We need to get our studies done. We need to get our contracting and financing done. And then we’re away. Then we’re away. We’re not still doing environmental baselines. We’re not still waiting for environmental approvals and so on. I hope for my colleagues in Athabasca, that those things come quickly for them. The market is going to need them. I certainly don’t feel threatened by a bunch of production coming in from the Athabasca, but that is still a big process that needs to take place. I’m delighted to say that we do not have that ahead of us.

Matthew Gordon: You have got a pretty experienced board. It’s something we have talked about before, and it’s something I keep reminding investors about. What have been their concerns with this segue from large project to small project? What are the issues that they wanted to deal with and what are they issues that they still think lie ahead?

Brandon Munro: The biggest issue in terms of dealing with this is, I like to say that I’ve got a healthy degree of scepticism around the boardroom table. And really, truly that is the best board to have. It’s far from a group of ‘yes men’. I’d like to think that I have built the board’s confidence over time, but I get plenty of difficult questions from them. And that is ultimately the best approach to take. They’ve been sceptical about whether you can take a bulk tonnage project such as what we’ve got here, dramatically reduce its throughput and end up with better project economics. So that is what has pushed us through this process. I am pleased to say that we’ve proved it now to the board. So that is no longer a scepticism that we need to deal with, and there’s a lot of good reasons why we’ve been able to accomplish that, because of stripping ratios, slight increases in grade.

Going forward, I think the main challenge that the board sees is educating the market into understanding that this is an and/or. Markets often can only really like latch onto and think about one scale of project, and obviously, that’s what we’re going to be talking about for quite some time, because that’s what we’ve now got to explain to the market. But the board sees my challenge as reminding everybody that 20M ton of Etango producing 7.2Mlbs is still an enormously valuable asset for our company, even though all of the news flow and all of the focus and everything that we’re going to be talking about is at Etango 8 – the 8Mlbs a ton p/a project that’s producing 3.5lbs p/a.

Matthew Gordon: I want to go over some of these numbers. So 9-months for PFS, you’re going to skip the Feasibility, go straight to DFS. Let’s say that thing gets wrapped up in 2-years, 2-years to construction, so 4-years. So why do you say you are timing this perfectly? What makes you say that?

Brandon Munro: Because when you look at let’s use the WNA numbers, because as I’m very familiar with those. What we see from the WNA reference case and in particular, the uppercase, is you see supply depletion in this sector really start to bite from 2024 and in particular 2025. And this is all putting to one side, all of the supply disruption that we’ve seen because of COVID. Now, we are just ignoring that for now, but if you think about it: 2021, Ranger – one of the biggest Uranium mines, historically comes out of production in January, this coming January. COMINAK in Niger ceases production in 2021 as well. By 2024 and 2025, we’ve got that supply depletion exacerbating by certain Kazakh assets starting to deplete. And when WNA in their nuclear fuel report, start to model out that Uranium supply that can come back into the market, even after allowing for projects, including a Etango to get into production and start producing, even after allowing for all of the care and maintenance projects: McArthur River, obviously Cigar Lake coming back on. Langer Heinrich and others, there is still a big gaping supply gap opening up from 2024, 2025.

The events that we’ve had just now with COVID-related supply disruption, they are going to continue into 2021. They are going to have the effect of really tightening up remaining inventory and getting the attention of utilities. And I think, shifting this whole dynamic from where it’s been of complacency with cheap Kazak over-production being available for several years through to concern. And if we can time that inflection point from complacency to concern and be in front of utilities with a viable project that has relatively low hurdles to development. That’s why I say we can time this perfectly. We can be in front of utilities, presenting a solution to the extent of 3.5Mlbs exactly at the time when they are going to have to be thinking very, very hard about where they are going to get their lbs from 2024, 2025 onwards,

Matthew Gordon: It feels like you’ve been biding your time, waiting for the moment, and to get this study out now, it really is a different Bannerman from the last Bannerman that I spoke to. I will be interested to see the progress over the next few months. Certainly, when you commission the PFS and get that going, I think that’s going to be a real, real moment to truly get behind the economics that you’re purporting you should be able to achieve.

Brandon, thanks very much for that run through. I appreciate that. And we will catch up later this week to talk about the KazAtomProm quarterly as well, if you don’t mind. In summary, what was your take on it?

Brandon Munro: I think that the most important comments in that relatively short document was, first of all, KazAtomProm confirmed that they’ve entered the spot market. It has been something that’s been rumoured for a while. Now we know that that is the case, and we know that they are going to have to continue in the spot market. The other thing that they acknowledged that will start to get the attention of generalist investors in particular, is they acknowledged a severe impact on their production in the second half of this year. And that’s because, something that we’ve talked about a lot – the lag effect, and they said that that lag effect could continue as long as nine months from the disruption. So even once they are back in business, we’ve still got many more months of disruption coming out of Kazakhstan. So that’s now very much put 2021 under doubt. And remember it was only last week that Cameco started to raise the possibility of Cigar Lake production in 2021 being under guidance because of delays in doing some of the forward development work that they’d need to, to ensure that they are producing at 18Mlbs in 2021.

What we’ve got out of that is: they are not acknowledging any further delays to them getting into a return to production. They are emphasising that it’s going to be slow and cautious. They are already in the spot market, and this is going to be a supply disruption that’s going to keep giving to investors for quite some time.

Matthew Gordon: I’m looking forward to talking about that with you later this week. Congratulations on the Scoping Study and the numbers. I think that puts you in a very unique small group, a category which should get people’s attention. I look forward to seeing how people react as well. Thanks again. I’ll speak to you later this week.

Brandon Munro: Yes. Thanks very much. Thanks for all the good questions. Tough questions. I enjoyed it.

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

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Bannerman Resources (ASX: BMN) – Putting Itself in Contention at the Head of the Uranium Pack

Bannerman Resources Ltd
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.04 (05.08.2020)
  • Market Cap: A$39M

The brute scale of Bannerman Resources’ massive uranium resource was never in doubt. It is a homogenous, average-grade bulk resource in Namibia, itself a benign mining-friendly country on the South-West coast of Africa. Therein lay the problem for most investors: Bannerman’s 2015 Definitive Feasibility Study demanded a pre-production CAPEX of the best part of $800M.  Given the Aussie junior’s tiny EV and the huge volume of pounds that needed to find a home, Chinese nuclear utilities and their voracious future demand for uranium seemed to offer Bannerman’s best – and perhaps only – option, particularly because Africa remains a happy playground for large state-owned Chinese groups.

But things have changed today.

Bannerman’s CEO, Brandon Munro, is known as a seasoned and engaging individual, with an enquiring mind and ability to shine a light on what is often an opaque space. He is undoubtedly one of the most intelligent uranium commentators, and his insights are incisive, compelling and articulate in equal measure. However, Munro has now decided to shine white light on his own operations and to address market concerns with Bannerman Resources. Today’s announcement that Bannerman Resources has reconfigured their approach to get into production earlier and with a much-reduced CAPEX means that this project just made itself very attractive to a new raft of funders and investors. As we say here, the optionality just got brighter. We would argue Bannerman Resources is now in rarefied air, just one of a handful of uranium juniors with scale that can genuinely get into production within the next 3.5-4 years.

Matthew Gordon talks to Brandon Munro, August 2020

The decision to reduce the scale of a bulk-tonnage project would usually damage the economics, often beyond repair. But, in this case, it hasn’t, partly because advancements in processing technology have reduced reagent costs and also because the shape of the out-cropping Etango orebody facilitates a long mine life at low stripping ratios. The new scoping study has reduced the scale of Etango to a much more manageable and pragmatic level, which will ensure Etango has the optionality it needs to aid its journey towards production. The CAPEX has gone down to just US$254M, less than a third of the previous number. Whilst the annual production has also reduced, from 7.2Mlbs pa to 3.5Mlbs pa, it is still a very meaningful production profile than can only be matched this decade by a few players. The company will refer to Etango as “Etango-8” from now on (referring to the new 8Mt pa throughput to the mill) as a lucid indicator of the new value proposition on offer. In contrast, the throughput of the “giant project” was 20Mt pa. Etango-8 might only be 40% of that throughput, but because of the boost from a 20% higher grade profile, the company will produce 50% of the yellowcake over a relatively long mine life that can readily extend into Etango’s 271Mlb mineral resource.

Jurisdiction matters. So, what of the Africa factor? It doesn’t have the sex & sizzle of the Athabasca Basin. Munro is open in his support for all uranium miners, but he is also candid about the advantages of Etango-8 in relation to his Athabasca cousins. The Canadian projects undoubtedly have high-grades, but they also come with extremely long environmental baselines and permitting times – not to mention very large CAPEX requirement – resulting in finance-driven contracting thresholds that will impose a herculean task on their marketing teams.  We expect that Bannerman can move into production and be negotiating contract extensions long before the Athabasca plays can start to commit their production under contracts.  It’s hard to overstate the importance of timing in the uranium sector – not only because the sector’s famed volatility presents financing windows but also because arriving late to the contracting party reduces options for new entrants.

So timing, as always, is going to be critical in the uranium sector. Expectations around the macro are pregnant with expectation. Indications suggest that price discovery will come in mid-2021 as US utilities are pressured to sign long-term contracts and the big players continue to mop up loose inventory in the market. We should start to see price slowly move early 2021 before term-contracts and tight supply make the environment somewhat more competitive.

In their 2015 DFS, Bannerman Resources presumed a uranium price of US$75/lbs. In the new scenario, the company has been able to reduce this price assumption to US$65/lbs whilst maintaining an IRR above 20%. The post-tax NPV is still attractive at US$212M, admittedly a “significant premium” above the company’s current market cap. But the scale of the project is driven home hard if the original price assumption is applied; at US$75/lbs the Etango-8 post-tax NPV explodes to circa US$350M. The uranium spot price is just over US$32/lb today, so we’re still some way off what Bannerman Resources would need to be economically viable, but such is life for all uranium producers and juniors. The entire market is calling for a minimum of $60/lbs, and our off-the-record conversations with other uranium CEOs suggest the more realistic number required is $75/lbs.

The AISC now stands at US$40.90/lbs. Although only a modest improvement on what the company had back in 2015, it is commendable that Etango-8 did not trade-off the impressive capital reductions for higher operating costs. Total throughput for the LOM is now 51Mlbs compared to 113Mlbs under the 2015 DFS. Investors should remember that resource endowment isn’t going anywhere; those pounds are ready to provide optionality in the future. The giant-version of Etango retains environmental permits, a pilot plant, and a DFS – providing a highly leveraged option to uranium investors’ dreams coming true.

This strategy actually reminds us of a mining company in a completely different commodity class: gold. Rio2 is a Chilean gold miner, and CEO Alex Black reduced the resource of its flagship gold project by half. While the market didn’t appreciate the move at first, the booming share price now suggests that it was an incredibly smart one. Perhaps more companies need to think with agility and change the development playbook.

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Rio2-like returns might be what investors now expect to see from Bannerman Resources. Munro is targeting an accelerated pathway towards construction, with a PFS and DFS targeted within the next 18 months. Many uranium investors had viewed Etango as too large to succeed, but now the company appears to be fit for purpose and primed to time its entry into the next cycle perfectly if all the rumblings about potential uranium price discovery prove to be correct. 

This has turned Bannerman Resources into a vastly more attractive uranium investment proposition, but there’s a lot of work left to do. If there’s one person we’re confident can accomplish these deliverables, it’s Brandon Munro.

Will Bannerman Resources be producing pounds before the Athabasca Basin? Comment your thoughts below and we will respond.

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.

Energy Fuels (NYSE: UUUU) – Uranium Investors Looking to Critical Minerals Hub (Transcript)

Energy Fuels Inc
  • Shares Outstanding: 115M
  • Share price US$1.78 (01.05.2020)
  • Market Cap: US$205M

Interview with Mark Chalmers, President & CEO of Energy Fuels (NYSE: UUUU)

Energy Fuels is America’s leading producer of uranium and vanadium and is venturing into the rare earths space. All critical and strategic minerals in the US. So who owns the only processing plant in the US?

We caught up with Chalmers to get the latest on how he is re-shaping Energy Fuels into a tantalising value proposition by building a critical and strategic minerals hub at their wholly owned White Mesa Plant. There have apparently been plenty of catalyst moments within the uranium space over the last few months, predominantly surrounding the destruction of inventories and tightening of supply caused by COVID-19. But nothing has touched the sides. The US House of Appropriations Committee recent decision to block the funding of a US uranium reserve appears to be another minor setback for uranium bulls, but Chalmers doesn’t see it as a definitive “no.” He experts the topic will be revisited one the DoE can provide a little more clarity on how exactly the reserve would be implemented, at some point in the next 180-days.

Courtesy of its strengthened balance sheet, Energy Fuels has been able to redeem half of its C$20.86M convertible debenture loan, with the rest of it due at the end of this year. The company will avoid approximately US$350,000 in interest payments in 2020 as a consequence. Uranium juniors across the land are currently running up big debts to fund exploration programmes for assets that are as yet not proven economical. Energy Fuels seems keen to set itself apart as a logical option for new uranium speculators.

Their real key differentiator is their White Mesa Mill in Utah. The only remaining fully-operational conventional uranium mill in the US is coveted by many, but some investors have not yet recognised the full extent of its capabilities. It is able to process uranium, obviously, but it is also able to process vanadium and Rare Earths. Which, Chalmers argues will be crucial as America might see REEs as strategic commodities and is attempting to build a new global REE hub to rival the status quo of Chinese dominance. 5 companies have recently told us they will be using White Mesa Mill to process their uranium, but Chalmers says he has had no discussions and has signed no agreements with anyone. In fact, he has blunt message to uranium companies claiming that they will be tolling at White Mesa: STOP. Energy Fuels is likely to enjoy a monopoly over Northern American uranium juniors who face the choice to pay a toll fee to Energy Fuels’, or ship ore more expensively to South America. The competitive tension is palpable.

With consolidation in the industry becoming more likely, especially to make the utilities take producers more seriously, Energy Fuels could well be looking at M&A in the future. We challenge Chalmers on what exactly he could be looking for.

We Discuss:

  1. 3:50 – Opinions on the US House of Appropriations News
  2. 6:17 – In Control: What Have They Been Doing?
  3. 7:53 – Relationships with the Government: Agendas and Capitalization
  4. 12:12 – RSA Deadline: News and Views
  5. 16:22 – “Cheaper for Longer”: Utilities, Producers and Timings
  6. 22:37 – Paying Down Debts: Why Pay Early and What Happens at the End of the Year?
  7. 24:30 – Possibilities of Selling Inventory
  8. 26:30 – Get in Line for the Mill! Companies Allegedly Partnering with Energy Fuels
  9. 28:10 – ASX Junior M&A in the USA: Why Didn’t US Companies Pick Those Assets?
  10. 31:02 – Viewer’s Question: Any Plans to Buy Uranium?
  11. 34:47 – Rare Earth Possibilities: Discussions with Constantine Karayannopoulos

CLICK HERE to watch the full interview.

Matthew Gordon: Mark Chalmers, how are you doing, sir?

Mark Chalmers: Very good, Matt, how are you?

Matthew Gordon: I’m excellent. I haven’t spoken to you since we were at AUSIMM online virtual conference together. How did that go?

Mark Chalmers: It went really well, Matt, and I’ve mentioned to you that that’s an event that I’ve chaired for 15 consecutive years, and I was very pleased that we got it up this year. 15th year in a virtual format, and we had a very good attendance and some really excellent speakers.

Matthew Gordon: And that’s tough, going from an actual, in-person type conference to doing something virtual. But you had some amazing people on there. We have been watching back some of these sessions. It was a good session. So thank you for putting that on, first of all,

Mark Chalmers: My pleasure. And we tried to broaden it out a bit more this year with things like the small modular reactors. And that was popular, broadening that out a bit.

Matthew Gordon: Yes, definitely.  it’s quite good, we try to do it as well, which is trying to help educate people about Uranium. Because what we’re seeing now is a lot more well, new investors coming into the world of investing, but also generalist investors who perhaps haven’t considering Uranium before. All of them are asking questions, which it’s easy for people like yourself, or certainly even us to forget that people are coming into this new. All of this is good, good information. But we are not here to talk about AUSIMM. We are here to talk about Energy Fuels. I want to start specifically with the recent announcement by the US House of Appropriations to say no to the funding of the Uranium reserve. How do you feel about that?

Mark Chalmers: Well, look, it was something that we didn’t want to have him say no to, but it’s not like no-no. They zeroed it and they basically said they didn’t have enough information from the Department of Energy on how the program would be implemented. And the belief that DOE is trying to answer those questions as we speak. The DOE is also looking for other sources of funding the reserve. Secretary Brouillette has been out publicly saying that he has very strong support for the Uranium reserve. The Senate is behind it, or at least the Republicans in the Senate are behind it. So, it is a setback, but it really reflects on the differences between the Republican party in the United States and the Democrats. But we are making progress with the government bipartisan-wise, because of the dependency on Russia for Uranium products and in China. There is progress being made it just isn’t every day that you make a step forward, but we are making steps forward, more steps forward than backwards.

Matthew Gordon: Are you saying that the House turned that down purely on political reasons or did someone not do their homework and provide the information that had been requested?

Mark Chalmers: Yes, it is a combination of those things. We are certainly doing everything we can you to get it back into the House bill and ‘unzero’ it. But, these appropriations are like trading exercises between the both parties and different people’s interests, but we have very strong support in the Senate and the DOE and this increasing threat of Russia and China, particularly Russia for nuclear fuel products. So a lot of, or a number of Democrats are recognising that, but some of the Democrats are opposing it for other reasons and that’s politics

Matthew Gordon: That’s politics. So, talk to me about, so that’s not in your control, it was never in your control. It was something that you highlighted, but you have got to focus on things that are in your control. What are you doing that you can manage?

Mark Chalmers: Well, let’s look at a lot of the work we have done through the Section 232 process of the Nuclear Fuel Working Group, in the strong policy statement that the nuclear working group report that came out of the working group, that is still helping us on a lot of fronts, not just in appropriations, but also in some of the negotiations on the Russian Suspension Agreement. Basically, the Working Group said that it is a national security issue, receiving so much of our Uranium from imports and particularly from Russia, so that is helping us in other areas. And, we’re still pushing on all fronts: appropriations and our participation in the negotiation of the Russian suspension agreement. But we are managing the company on the company basis alone, not dependent on government support. We have seen some increases in Uranium prices over the last couple of months. They have flattened out lately. You’ve got to multitask in this business, if you don’t multitask you will not survive, but we are in very good position amongst our peers, and we are very excited about the future.

Matthew Gordon: Sticking with the government components, if we may, you have, over the past couple of years, been talking to people in DC, up on the Hill, as the phrase goes. Have you made relationships, or have you made useful relationships? And at what point do you start cashing in on those? Because at the moment they’re not giving you what you want.

Mark Chalmers: Yes. The cashing in is the difficult part. We certainly have the strong relationships in the push of the administration. There there’s some indirects here that we are cashing in on, and the Nuclear Fuel Working Group is one of them. Take the Russian Suspension agreement; that expires at the end of this year. And there are active negotiations on that front. But for example, one of the key issues with the Russian Suspension is that the Nuclear Fuel Working Group says that we’re overly dependent on Russia and state-owned enterprises. So that’s a very strong policy document, basically prepared by about half of the president’s cabinet. And, that’s something very powerful to use in those negotiations. It is not always completely clear to particularly, some of our investors, but we are punching above our weight in DC on a lot of these fronts. It is frustrating because it has taken a lot of time and we haven’t seen the money in hand yet, but it is getting through people’s minds that we are overly dependent on critical minerals, particularly Uranium, Vanadium and Rare Earths in the United States right now.

Matthew Gordon: The strategic minerals, the critical minerals component is really interesting to me. There are relationships that are being formed or have been formed, they are recognising this. But my view on this is, politicians – they always want something from you. They aren’t necessarily going to give you anything back. You’re making them, you’re giving them a topic that they can promote themselves and their own agendas on, but do you seriously think that Energy Fuels is going to be able to capitalise on this? For instance, you have been talking about Rare Earths recently, are you hearing things which make you think we need to lean a little bit towards Rare Earths, because those are the sorts of noises coming from the Hill?

Mark Chalmers: You’ve heard me say it many times that we are first and foremost a Uranium production company, but we do think that the Rare Earths sector fits very nicely in what we do, our core business, because we can recover the Uranium from a lot of these Rare Earths. A lot of our political supporters on the Uranium reserve and the nuclear fuel cycle are also the exact same supporters for reducing our dependency on China for Rare Earths. It all fits nicely together. And there is no company out there in the United States. None. Not one that has got the optionality, when you deal with these critical materials as Energy Fuels, with the mill and the Vanadium and the potential for us to be, we believe, commercially producing Rare Earth concentrate in the quite near term.

It’s a lot of these indirects. But that a lot of the people that have been supporting the Nuclear Working Group and the production of nuclear products in the United States, when they see that White Mesa Mill could have multiple uses in the critical area they’re delighted. They’re actually delighted to know that.

Matthew Gordon: For people who are new to this, you’re talking about the White Mesa Mill, which you control. And it’s the only mill in the district which actually can cope with Uranium, Vanadium and Rare Earths.

And before we skip away from the RSA, the Russian Suspension Agreement, the date is 31st of December, end of this year. A decision needs to be announced. or any time between now. Have you heard anything about what is being discussed? Are they going to come up with a decision anytime soon or are they going to leave it to the last minute? And if so, what type of deal do you think we are going to see as a result?

Mark Chalmers That’s the big question. Look, there is, and I can’t go into details because a number of people that are participating can only go into so much detail, but I can say this: there is a push by the government to reduce quantities of Uranium coming into the United States, where there is a push by the Russians and the utilities to increase the quantities of a Uranium coming into the United States. So those are completely, oppositely opposed. Okay. And that is a rub. And as I said earlier, the Nuclear Fuel Working Group report says that we shouldn’t be increasing or dependency on Russia. There was a preliminary administrative review that was completed a month or so ago by the Department of Commerce, and they basically said that the conclusion of this agreement, what has largely been  gained by some of these people that want more Uranium coming into the United States, and  that shook up the utilities and it should shake up the utilities and the Russians.

It is moving forward.  it is a high priority for the government.  it’s a high priority for all the stakeholders in those renegotiations and negotiations. But I will say: watch this space, because it is probably, well, without a doubt, getting the most attention, in my opinion right now in the, in the Uranium space globally. And  that the preliminary administrative review that said that even though the agreement that’s in place right now was, people were abiding by it, the fact that it was expiring and that a number of utilities and the Russians were over-contracting greater than the 20%, is creating some ripples in the water right now.

Matthew Gordon: You say watch this space. Do you mean watch this space in terms of timing? Do you think it’s imminent? Or watch this space because you think the terms will change.

Mark Chalmers: Well, look, the deadline is the end of this year, 31st of December, 2020, but the administrative review process is ongoing and it was supposed to, I believe, terminate in early August, and now that’s been extended by another couple months. It’s just very much in the works right now. And, the outcomes are not certain, but it is getting a lot of attention. And, there’s really 2 camps:  to reduce the quantities coming into the United States or increasing the quantities, and the Nuclear Fuel Working Group is basically saying it shouldn’t be increased. It should be extended or decreased. These are the kinds of things that indirectly are pieces to the puzzle, that we were very much drivers of, as Energy Fuels, and it is helping us right now on other fronts that are less transparent because of the nature of the negotiations.

Matthew Gordon: But it is now also apparent the battle you are fighting, because you’ve got an argument of national security; critical minerals to the US, being self-sufficient, which is one position. And the other position, where one of the parties in all of this was not aligned and that’s the utilities, taking a commercial decision, and you would argue short-sightedly, because they wanted the cheapest possible product. They want more of this, more and cheaper, for longer. So that was the battle that you were fighting. And these guys had big, deep pockets in terms of their lobbyists. That seems to me a big part of what was going on and all of this.

Mark Chalmers: We have very good relationships with many of the utilities and I’ve delivered Uranium to many of them for decades. But yes, the utilities are looking at cost and they are trying to manage their businesses as they have to. So, that for a small company like Energy Fuels, and the Uranium industry, because it’s not just Energy Fuels fighting this battle, but mainly Energy Fuels has taken the biggest position, in pushing it forward. We have, as I’ve always used that phrase of, we punched above our weight. These utilities are very significant organisations with multiples and multiples of billions of revenue per year. So that’s why I said, we’re going to keep pushing on all those fronts. We’re not going to give up. We are not going to give up. But at the same time, we’re going to manage our business based on the market fundamentals.

Matthew Gordon: Big discussion. Lots of unknowns: timing is, well we know that there is a stop date at the end of this year for the RSA, and that seems a big moment for utilities, as is the US election, and that’s another big moment. And I know that there’s a consensus that nuclear is part of the solution for both sides of the house, but the Democrats a little bit less so than the Republicans,  I’m hearing from you. So even the utilities will be wanting to understand what the outcome of that election is, but that then has an impact on timing because the dust doesn’t usually settle from a US election until February, March, and then maybe there’s a shakeup, even if the incumbents stay in. So, what does that do for timing around utilities’ decision-making, term contracts, et cetera, how do you feel about that?

Mark Chalmers: When you look at it, there’s a lot of uncertainty, and uncertainty is uncertainty. So we’re preparing ourselves for any eventuality. We did pay down half of our convertible debt and we’re looking at the other half on how to best address that. We’re increasing our inventories. But we do think that, there’s uncertainty, but that if there’s an administration change, they are talking more negatively about hydrocarbons than they are nuclear, and to a certain extent that is supportive of nuclear as being important to get to zero carbon emissions. So, I don’t want to speculate, over speculate here, Matt. But you’ve seen over time that we are a company that positions ourselves aggressively but not recklessly when it comes to the overall picture of the company and we will be the survivor or one of the survivors in this space because of the way we manage the company now and going forward.

Matthew Gordon: And so one last macro point. So you producers. You’re a producer, right? The largest in the US. The Cameco’s of this world, and even the Kazatomproms of this world; you have relationships with utilities all around the world, and you can’t bad mouth them. You’ve got relationships, professional relationships with these guys, but it’s been a deeply frustrating process for all producers for the last couple of years, has it not? To have this fight, this debate around pricing. You need a certain price to be able to get back into production and you need to be incentivised to do so. So, going back to the question, which is, what do you think the timing is for what utilities recognising that if they don’t push the button soon, you guys aren’t going to be able to get back into production and give them the pounds that they need when they want it?

Mark Chalmers: Yes, those are the trade-offs. And some of the utilities understand that and appreciate that. Some of the utilities don’t think that total dependence on the Russians is fine. Even companies like Cameco. Some think, ‘well, we’ll be totally dependent on our allies, and we have no Uranium production in Canada right now’. The production is dwindling in Australia with the shutdown of Ranger; well, it will be at the beginning of 2021. So, the Western world, that’s the clash. It really is the state-owned enterprises vs the Western world – that’s the clash. You need higher prices, substantially higher prices for the entire world, including the Western world to continue to survive in the Uranium industry. Some of the state-owned enterprises may be a little less so, even though a lot of them are not as a low-cost is people want to think. So that that’s the clash. Do you want a diverse supply chain, or do you just want to get all your products at state-owned prices? So, yes, that’s the uncertainty there.

Matthew Gordon: Let’s talk about something you just mentioned, which is, obviously you’ve partly paid down the convertible which is due at the end of this year. You paid down some USD$10.4M, USD$10.3M. You have got the same  due at the end of the year. So why did you go early on the payment and what are you going to do about the end of the year payment?

Mark Chalmers: We wanted to show the market that we were managing that convertible debt, and that was about $10M Canadian. And we thought it was a prudent step to pay half of it. We are still looking at how to best address the other half. We have the ability to convert that into shares. And it’s like a 20-days VWAP at about a 5% discount at the end of the year, if we elect to do that or pay it off in cash. But, Matt, I’ve told you; having been in this business over 40-years, I’ve seen these companies get in trouble because of debt on a number of occasions. And that is an area that is close to my heart, to not get over-leveraged on debt. And at the same time, there are a number of the Uranium guys that are taking on more convertible debt, and we’re going the opposite direction, which is a differentiator. No one else that I know of in our space has actually been paying off debt. They have been taking on more debt as they go forward. So, watch it. We will pick our moment and we will address the debt no later than the end of the year, maybe sooner. But we want to make sure that we do it on our terms

Matthew Gordon: Is selling down some of your inventory a possibility? Because looking at the numbers, if you’ve got about USD$21M to USD$23M worth of Uranium, you’ve got about USD$8M to USD$9M of Vanadium. I know the prices are low, but if needs must, would you consider selling that down?

Mark Chalmers: Anything is possible. We like holding the inventory because we think the market is poised to reward us for having that inventory. By the end of this year, we’ll have in the order of close to 700,000lbs of inventory close. So, it’s our objective not to sell the inventory down until the prices are at higher levels. Yes, look, there’s a number of ways to address the debt, but we would really like to see the continued increases in Uranium and Vanadium prices, particularly Uranium prices to get a bigger lift out of the out of that inventory.

Matthew Gordon: Do you think it would be cheaper to refinance your debt rather than pay it off or sell off inventory? Because the upside on inventory could be more significant?

Mark Chalmers: The inventory we carry, it is the like, for Uranium, it is like USD$23/lbs, and currently price is around USD$33/lbs. That is how we carry it on our books for counting purposes. So, we’ve got about a $10/lbs lift you just on the Uranium price itself. That’s material to us. We think there is more upside for inventory than downside. You don’t get any money in your accounts, any more interest bearing on your account, so we’re pretty comfortable having this inventory that we can liquidate quite quickly if we need to when the time is right.

Matthew Gordon: But there’s some good news, Mark. I’ve solved your problem because I’ve spoken to, for cashflow, I have spoken to 5 companies who are going to be tolling through your mill, which is great news.

Mark Chalmers: Yes. That’s very interesting news because none of them have called us to ask us about that.

Matthew Gordon: Oh.

Mark Chalmers: It seems like every week I see another, press release or something that shows a picture of our mill and they didn’t even ask permission to use the picture of the mill. I need to clean this up because it is not right for people to just assume that they are going to have access to the mill, because they don’t have access to the mill. We have no milling agreements at this point in time. In the event that we do decide we’re going to give, we probably won’t give out a milling agreement, we will announce that, but for all of our investors or any investors in any of these other companies, no one has access to the mill except for Energy Fuels. So yes, it’s amazing how they all chime in and show pictures of the mill and how it’s close by, inferring that they have access to it, but they don’t.

Matthew Gordon: I just wanted to put that to you, because you’ve spoken to it least a couple of times before, you’ve been very clear with me, but we keep seeing it, and I just wanted to give you the chance to respond. And that’s the most direct you have been with us, so I do appreciate that as well. One more thing, if I may. The other thing that is happening is there is a lot of Australian ASX-listed juniors coming and picking up Uranium assets in the US, and they’re getting funded. They are raising money off the back of this. Why haven’t all of these Uranium assets in the US been picked up before?

Mark Chalmers: Well, there is a lot of Uranium assets in the United States and a lot of these properties that people are picking up, they’re not permitted. Now there may be 1 or 2 that are permitted, but a lot of them are not permitted. And over the last 20-years or so in our case, we’ve picked up… well, many of our projects are permitted, have a long-term production history and recent production histories, there’s only so much space in the market. Getting permits is very, very difficult. And there are other companies that do have some permitted assets. I don’t know. To pick up unpermitted assets, to not having access to the mill, very speculative investments. They have been raising money on it. And frankly, a lot of projects on the Colorado Plateau are of lesser risk and probably easier to get to market than a lot of these other Uranium deposits that some people are promoting outside of the United States. There’s a long production history in the US. So there’s different investment risks for different groups of investors. So, just, all I would say is people need to know what they are investing in. If they are comfortable with that, that’s fine. That’s their choice.

Matthew Gordon: It is always their choice. Why didn’t you pick them up?

Mark Chalmers: We don’t need any more assets. We have assets in about what?- 6 or 7 different States. Most of our assets are permitted. Most of them recently had been worked and the underground workings are in good shape. The mill has been operable. Nickel’s ranch has been operable. Alta Mesa. So, we don’t need to own the Western United States. It is costly and there’s a point where, it just makes absolutely no sense to have more assets.

Matthew Gordon: “Some questions sent in: wouldn’t it make sense for Energy Fuels to now step in as a buyer. They need ore at the White Mesa mill. They want Uranium, they want Vanadium. The Sunday mine complex is basically next door. This might be a fun ride going forward.” Any plans?

Mark Chalmers: I’m not going to say we are not going to buy Uranium in the future, because that’s the history of the district. But to put it in to perspective, over the last 10 or 15-years there have been times when we have had milling agreements and we have perhaps bought some ore from people, but it turned out to be just a very small percentage of the production that came out of White Mesa mill. And I don’t know the exact number, but probably in the order of maybe 10% of the production that came out of White Mesa came from other mine that were not owned by our company. So now look, that that can be variable, but the reason why we haven’t paid a lot of attention to this market is, 1) the prices are too low, and 2) historically other people may have, the aspirations of becoming producers, but very few can actually really contribute in a material way in the mill. Now, the price Uranium is USD$75/lbs or something like that, that could change to some extent, but we already have a number of mines ready to go, that we have operated within the last year. And these mines that were mined 30, 40-years ago, and nobody has mined them since; I hate to think of the condition they’re in.

Matthew Gordon: Is that a no?

Mark Chalmers: So, look, we still control the district with our White Mesa mill, 100% owned. And that’s because we have spent the money to keep it in good working order over all these years. Anyone who wants to build another mill, they can go out and get the permits and construct another mill for several hundred million dollars. That is always open to the realm of possibilities.

Matthew Gordon: So that a ‘no plans anytime soon to go and have a conversation around M&A with Western Uranium and Vanadium?’

Mark Chalmers: Well, it’s subject to change: if, for example, if the US government decided, or the price of Uranium increases to a level where it’s economic to have those discussions, I’m not saying we’re not going to have those discussions because if we can get material into the mill and that helps us, we’re not going to,why would we turn our head to that? We will not turn our head to that, but I’m just saying that right now we have no agreements with anyone. Still, no one should just assume they have access to the mill right now. They should not assume that. And, but things can change. And we are absolutely in the driver’s position with the mill. And the material from our projects will take first priority over anybody else’s material.

Matthew Gordon: Mark. Good catch up. Thank you very much for that.

Mark Chalmers: We didn’t talk much about the Rare Earths.

Matthew Gordon: Oh, yes. Sorry, you’re right. Let’s do it.

Mark Chalmers: It’s a great spot for us, Matt, and a huge differentiator. So we’re still advancing our efforts on the Rare Earths. I hope to have more news flow on that front in the coming months. It has by no means gone away. People that I know say, ‘Oh, they’ll never do anything there’. I tell them – they are full of baloney. We’re going to do things in the Rare Earths space. And, it is certainly getting a lot of attention, it certainly has by-partisan support, the Rare Earths and the dependency on China. So, all I can say is, watch this space. But we are advancing things, but we can only unveil things as we close them out. But we’re still testing material at White Mesa and we’re getting a lot of interest in it.

And so if you talk to people in the Rare Earth sector, those that know about what we are doing and our aspirations you’ll find that many of them will say that we are in a very unique spot here. Very unique spot. The market is recognising that right now.

Matthew Gordon: And I have got to ask you, only because I’m so pleased at the way I can pronounce this, which is, how our discussions with Constantine Karayannopoulos?

Mark Chalmers: Well Constantine is an advisor to us. He just recently went from non-executive chairman to CEO of Neo Performance Materials, that’s a company that he founded and developed back in what, 25-years ago? Constantine and I talk on a routine basis, and Brock O’Kelly, and so we’ve got a very good relationship with those 2 gentlemen, and both of them worked for Mountain Pass and Moly Corp. And if you saw, Mountain Pass Materials announced that they’re going to list a USD$1.5Bn Rare Earths company on the Mountain Pass deposit and operations. And that, that got some attention in the market, and that’s why that we’re not getting any differentiated value with our peers in the Uranium space, but then we have this. What I consider a very significant opportunity in the Rare Earth space and still be able to recover Uranium from those streams.

So, basically what we’re proposing to do is exactly what CNNC is doing in China right now; trading monocyte streams of material, recovering the Uranium and going through the stream of further downstream Rare Earth processing. And White Mesa is the only other facility that I know of in the world, outside of that facility that can do effectively the same thing in given some time. So, watch it, watch it. And I am extremely excited about this, and this is one of the best opportunities I’ve seen in my entire career in the Rare Earth space and how it blends in with Energy Fuels, so watch it.

Matthew Gordon: We will, we will watch it. We are excited by it. We have spoken to enough Rare Earth companies. We know the restrictions that they have around processing outside of China. So, I do get that. I’m eager to see what does happen over the next few months, this side of Christmas, hopefully, in terms of how you are moving that one forward and who you are having those conversations with. So, keep us up to date. Pick up the phone like you always do.

Mark Chalmers: We will keep you up to date. And as I have always said, yes, some exciting times ahead. It’s a tough business, but you have got to know how to navigate it. And I won’t say that I know exactly how to navigate it at all times, but after over 40-years in this business you got to be tough. You have got to be tenacious. And you have got to be aggressive, but not reckless.

Company Website: https://www.energyfuels.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.

Brandon Munro #17 – US Utilities Want Russian Uranium (Transcript)

Bannerman Resources Ltd.
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price A$0.035 (16.07.2020)
  • Market Cap: A$37.06M

Uranium Market Commentator & Bannerman Resources (ASX: BMN) CEO, Brandon Munro, calls in for our weekly catch up about the world of Uranium and Uranium investing.

Based on questions that were sent in by viewers, it is clear that there are a lot of new investors coming into the uranium ecosystem. So Brandon and i cover a little bit of old ground but with new data. We start with the relationship between spot price and term-contract in today’s environment. We also look at the effect of supply and the effect on Russia v US tensions. Does Russia care about the Russian Suspension Agreement. Should they?

And we get his thoughts on the timing of the US utilities coming back in to the market to help drive equities. Are US uranium juniors without a cash buffer getting nervous.

We Discuss:

  1. 3:22 – How is Spot Price Determined
  2. 6:49 – Relationship Between Term Contracts and Spot Price
  3. 10:43 – Importance of Kazakhstan: How Long Can They Withhold Production
  4. 14:57 – Utilities Globally: How Do They Work?
  5. 19:49 – RSA: Why Should Russia Care About the US Market?

CLICK HERE to watch the full interview.

Matthew Gordon: Brandon Munro – how are you doing, sir?

Brandon Munro: I’m well, how are you, Matt?

Matthew Gordon: All good, well actually, I am not all good; my 12-year-old took me swimming for non-stop lengths of the pool, then made me tread water for 5-minutes, then made me do pull ups and I can barely move. I am incapacitated like the old man that I am, and I can’t sleep. So that’s me. Woe is me.

Brandon Munro: Oh, geez. That’s tough. Were you able to do the pull ups all on your own or did you need to get pushed a little bit?

Matthew Gordon: the problem was I did do them on my own and I’ve literally just ruined my back. That was 3-days ago. Too old. I’m too old. Let’s get into something I can manage, which is asking questions. It’s another week in the world of Uranium and this week we would change it up a bit. We have got loads questions coming in every week, which people want to put to you. We have put some down on paper at some broad headings. we might do some more next week because there’s a lot, even if we do consolidate them to broad headings. You’re ready for this? You’re okay?

Brandon Munro: Yes. Sounds exciting to me.

Matthew Gordon: I’m going to start with an easy one, which we have covered off in the early days, but there’s some people who don’t necessarily have time to go back through the series, but let’s just talk about an easy amuse-bouche for you, which is, ‘how is spot price determined?’

Brandon Munro: Okay, well that is a nice warmup one, isn’t it? The first thing to understand is that it is not like a clearing house spot price that we see in certain other metals. It is a reported spot price. So there’s a handful of reporters, and the best known of them are TradeTech and UX Consulting, and what they do is they basically keep their finger on the pulse in the best way that they can to understand who is buying what, in what volumes at what price. The first limitation is it’s not going through a clearing house or an exchange. There is some capacity for partial accuracy. And that has been improved. It’s been improved first of all, because there is a quoted futures exchange, which gives, a more accessible level of information to investors. And that’s a NYMEX futures exchange, which you can look up, say on bar chart.com.

And then the other thing is we have seen the emergence of traders who are very transparent, such as Numerco. So well-worth looking up Numerco, following them on Twitter, and they have really had a positive impact on that level of transparency.

The second thing to understand about the spot market is it’s not an immediate delivery market. In fact, spot can be anything up to 12-months delivery and it’s still categorised that way. So that is much to the irritation of some of the larger producers, the Cameco’s, KazAtomProm’s, for example, who want to move this market to a more realistic, immediate delivery or short-term delivery market. The other thing to understand is, as investors we see the price, but it does differ depending on the delivery point. The spot, or the price that’s quoted for say two-week delivery at Cameco might be different to the price that’s quoted for 2-week delivery at COMERX, for example, or in the US. And we have seen that play a big role just recently because of a disruption in both conversion and Uranium coming out of COVID, we have seen a lack of storage capacity at COMMEREX in France, and so a very big swing between what is being paid for delivery in Cameco, the Blind River and COMEREX in France. Normally the location swaps in this sector have been very, very fine, but that’s now changed, temporarily, no doubt, but that’s a big swing and a big arbitrage if people are able to move material, move in the sense of the location swap at the moment. They are the key downsides of what we have got at the moment we spot. It’s lack of accurate transparency. It’s a multitude of different delivery forms and locations.

Matthew Gordon: For people coming into Uranium, investors coming into the Uranium space and looking at it as a potential investment, that’s the first thing they look at. They think of, like other commodities, you look at the spot price and that determines the market. Once you move slightly further up that knowledge curve, you start to appreciate that. And in fact, term contracting with long-term contracts have a more significant role to play. Let’s just try and understand, if you may, the relationship between spot and term-contracts.

Brandon Munro: Yes, very good question. Particularly for people coming new into the sector Traditionally, this business was done almost entirely on long-term contracts between the utilities and the big producers. And that situation continued well into 2004, 2005. And the spot market such as it was, was really used for settling, say, overproduction by a mine that couldn’t be delivered into contracts or sometimes buying back production if there was a disruption or for some reason they had oversold who got over called on the production limits in their contracts. Now what happened in the last Uranium boom is financial players came into the sector. There was a huge increase in volume generally, and that made the spot market fulfil a number of other functions, not just that form of settlement of overs & unders, under contracts.

Then what we saw after Fukushima was a sustained period of low contracting, relatively speaking, and much higher spot volumes. So, instead of spot accounting for say 5% to 10% of the movement of material in the market in some years it’s been as high as 50%. We have seen an increased role of traders; there’s the concept of churn in that spot market. It’s not necessarily one pound being pulled out of a mine and sold to a utility, but that pound can be churned many, many times to create additional volume. But what we have also seen is the emergence, in particular of Kazakh production, a fair of which went into the spot market until fairly recently. So that’s important to understand, as well as you’re taking a little bit of an introductory trip into this sector, the important news is Kazakhstan has stopped selling into spot. They haven’t sold into spot since, the beginning of 2018. So no longer is there that pressure. And if we now bring that right back to a contemporary setting, one of the impacts of the COVID disruption in Kazakhstan is that at least one of the, let’s call it major culprits who sell their mined material into the spot market, derive the majority of that material from their joint venture in Kazakhstan with KazAtomProm. So even though KazAtomProm, isn’t selling into spot, their joint venture partner was.

So what we’re likely to see coming out of COVID disruption is both an increased demand, particularly if KazAtomProm is forced into the spot market to compete with Cameco and other producers, but also a lot of the supply will be cut off at the needs because those parties who traditionally sold their joint venture material into the spot market can no longer do that.

So, term contracts, whilst there’s a low relative volume of term contracts at the moment, they are such an important part of the risk mitigation and supply security that utilities rely on in this business, that they will come back. Spot probably won’t go into the dormancy that it was in the 2000, but its relative position will reduce as the importance of term contracting increases.

Matthew Gordon: Let’s move further up that knowledge curve. We talked last week at length, and possibly the week before actually, about the importance of Kazakhstan and KazAtomProm to the Uranium market. Kazakhstan represents about 40% of production globally. KazAtomProm has 24% of that. They occupy almost the entire bottom quartile of the cost curve there. They are very, very important. People new coming into this, recognising that some of the questions we have had are how much longer can KazAtomProm hold off from getting into production; either forced or unforced, and how can they mitigate that?

Brandon Munro: Okay, so let’s be clear on what we’re talking about: KazAtomProm and Kazakh production is still continuing and that’s because before their 7th April announcement that they were needing to curtail activities, they’d already done wellhead development and acidified their in-situ recovery wells. The acid that they pumped in in January, February, March for example, is still producing Uranium today. It is starting to deplete. It’s becoming less potent, if we can put it that way, but nonetheless, they are still bringing solution up to the surface and extracting Uranium. What we’re really talking about here is not production per se, but their ability to start again with the drilling of these extraction wells and the pumping of the acid in so that they can allow it to acidify the ore and start bringing that solution up. And finally, the point to understand here is, there could be a gap where the current production from January, February, March acidification tapers off to such an extent that there is effectively a full, a significant or majority break in production.

To answer your question, you’re working in scenarios always with this type of thing. What cause KazAtomProm have said publicly is that they will start slowly to recommence wellhead development from the beginning of August. And now we are all waiting for their third August quarterly update, because in the meantime, and since they gave that guidance, the lockdowns in Kazakhstan have been extended and there’s an awful lot of commentary and news flow coming out of Kazakhstan that things will get extended again, but be that as it may let’s work with what’s in the public domain right now. That wellhead development will be slowly reinitiated from August. I read that, to me, that the most optimistic scenario we’re dealing with here is that they would spend, let’s say 4 to 6-weeks slowly mobilising, and the wellhead development itself, in the most optimistic scenario, would be running at full steam by, let’s say mid-September. That will then take some time, several weeks, and it’s not like they can play catch up across all of those different 13 mine sites. And then there’s a process of acidic acidification and in the optimistic scenario that would all take place before the winter sets in and then they would be back to normalised solution recovery by, let’s say November. And we would still see the dip in production because of that lag effect. And that dip would still carry on into 2021 to an extent. But you could probably realistically see them back to normal production levels by, let’s say the second quarter of 2021. That’s the most optimistic.

Matthew Gordon: Which answers the question that we were sent. That’s something that people are going to watch very, very closely: what will KazAtomProm do? What will Cameco do? The 2 big players in the marketplace.

Let’s move it forward. So, again, for all levels of ability watching this show, it is quite clear from the questions that are sent in, and we need to make sure that everyone is comfortable and learns with us. We’re all moving forward towards the same place. And the next question is around, now that we understand some of the players a lot of people are recognizing that US utilities are very important. They are important because they represent 25% of the world’s global demand for Uranium. And the question is: do different utilities from different countries have a propensity or a favouritism to go to certain countries. So, do the French utilities always look in Africa? Do the US utilities always favour Canada, for instance? How does it work when you are a utility buyer?

Brandon Munro: Well, the answer to that is one of those classic yes, and no answers: if we talk about the French, for example, Électricité de France is the world’s largest utility because it is responsible for a 75% of France’s total electricity demand. And so EDF have had a long-standing relationship in Niger, which has been effectively backed by the French government. It’s a bilateral relationship, not purely a commercial one. They have derived a large proportion of their Uranium from Niger, but they’re also in a joint venture in Kazakhstan. They have production coming of Canada in joint venture with Cameco. And because of their comfort in Niger, they have also been happy doing exploration and development work in Namibia, for example, as well as Australia and elsewhere.

And they have been rationalising in recent times, trying to reduce the expense of their Uranium business. And there were a couple of spectacular examples of that, but that’s a story to tell another day. Now, they do also have trading businesses. They do also buy and sell in the spot market and to contractors and with others and so on, but they are something of an outlier.

Then let’s look at China: the Chinese model is a lot closer to the Orano/EDF model. They are buying heavily in the market and they have been for quite a number of years, back all the way to 2006. They also have a strong preference to deal in Namibia, and that’s for a range of reasons that would include the preference that Western companies would have in Namibia. And also the fact that because of the extent of their investments in Namibia, they are obviously able to have a relationship with the local Namibian community and the Namibian government that gives them a lot of comfort.

And one Chinese utility, CNC has the Rossing Uranium mine, and a 25% interest in Langer-Heinrich, which is the Paladin energy mine that’s on care and maintenance, and the other Chinese utility CGN owns the Husab mine, that they paid USD$2.4Bn for from extract resources back in 2012. The 3rd Chinese nuclear utility, SPIC has not yet acquired a mine in Namibia, Africa or anywhere in the world.

They’re the 2 major outliers. Then you’ve got the US industry. And as you’ve said, they are important. They still comprise roughly 25% of Uranium demand around the world. What happened is back in the late seventies, early eighties, a few utilities clubbed together to buy mines and got their noses bruised and broken, doing that. US utilities buying mines and operating mines is not a very popular thing at the moment and it is a bit frowned upon. It’s all commercial relationships and they buy across the board. And that’s all publicly available. You can go to the EIA report that came out a couple of months ago. You can see that the US utilities buy from Canada. They buy from Australia, they buy from Namibia, they buy from Kazakhstan and they buy from Russia. And there is a propensity to buy it from closer allies, such as Canada and Australia, but there aren’t any explicit limits other than the Russian Suspension Agreement on how much Uranium they can buy from anyone else.

Matthew Gordon: Well, that leads nicely onto a topic we discussed last week and a few weeks ago as well, which is the RSA (Russian Suspension Agreement). We had Dustin Garrow on earlier this week. Very well-known character, a Uranium consultant to many in the industry. And he’s been around the block a few times and seen the highs and the lows. He was talking to us about the RSA agreement, that Russian Suspension agreement. And it’s a very important topic, which the US government is in the process of making some decisions on. And the expectation is that, well, you talked about this last week; the decision needs to be made before the end of the year because we’re not quite sure what will happen if they don’t.

He put a very interesting thought forward, which is, at the time that the Russian Suspension Agreement was put together, back in the 1990’s, it was a very different world. There were very different demands in terms of the volume of Uranium used. And that Russia felt the US market was a very important to get into, and obviously the US didn’t want them flooding the market either for a variety of reasons, national security being one of them. Dustin thought, or he put this forward, which was, why should Russia care now, in today’s environment, when there is a much bigger demand story, there are new markets why keep banging down the door of the US market?

Brandon Munro: Well, that is an interesting question. And Dustin is certainly the guy to come up with those questions, with have such a vast amount of experience in the industry, including back in the old days when there was a bifurcated market with Russian material and non-Russian material and what was allowed into the US and so on. He’s got some insights from those days that not many people have got anymore. Here’s the thing; first of all, the Rosatom group of companies are extremely effective in this industry. They build plants on time, on budget, all of the time. They are in every aspect of the nuclear fuel supply chain, and they do it well. And they pride themselves on their delivery. They would not want to be the instigators of any breach of supply. They wouldn’t call force majeure. They wouldn’t withdraw unilaterally or voluntarily, but Dustin’s question and comment probably goes more to the situation where they are not allowed into the market by US government or by negotiations between the US and Russia, and how would they react? And Dustin does make a good point in that for Rosatom to lose their access to the US market with their enrichment in particular, sure, it would be a shame for them, and it would affect them, but it wouldn’t be a disaster. Russia has got very significant demands on Uranium for both its domestic requirements, but also its export program. And if they were left in a hole with their capacity for enrichment or SWU, they could redirect that capacity at re-enriching tails and other forms of secondary supply that would still have a happy home in their Uranium requirements now and going forward. It wouldn’t be a disaster for them. It would have an impact, however, on US utilities and depending on how far you want to go down this in terms of geopolitical posturing and how much of a conspiratorial approach you want to take to this, it would have the effect of putting a splinter in the finger of the US nuclear fleet, because it would make their enrichment quite a bit more expensive. The utilities would then have to very quickly recover that enrichment from non-Russian sources and non-Chinese sources, and there isn’t an awful lot of that. It would have two effects on the Uranium market as well as increasing the utilities fuel costs and their efficiency of producing energy.

The first effect on the Uranium market is it would quite quickly absorb the excess capacity in the non-Russian enrichment sector, which means less underfeeding, which means less secondary supply of Uranium that can make it into the market. Now, the second effect that it would have is, let’s say that we saw spiralling SWU prices. SWU is a separative work unit, which is the way that enrichment is priced. A spiralling SWU price would create an incentive for not only underfeeding to stop, but if Uranium is still relatively cheap, what the US utilities could do is they could overfeed. In other words, they pay a lot less SWU and they buy a lot more U308 so that they can push a lot of U308 through at higher tails assays. And for people new to this, probably the best thing to do is to go back to some of our discussions where we really talk about the nuclear fuel process and the whole cycle as it relates to conversion and enrichment. But for everyone who’s not coming here for the first time, that could create a situation where we see increased demand from the US utilities, and in the timeframe that we’d be talking about, what that probably means is very accelerated draw down on existing inventory of U308 and UF6 to fill that gap. That will affect different utilities in different ways: the utilities who counting more heavily on Russian enrichment would find themselves needing to act more quickly and more decisively. And of course, for someone who might not have been concentrating as much, this is a speculative scenario that we are answering. This is a scenario where there isn’t an agreement reached. There isn’t an act of Congress that comes to a resolution where there is a limitation, and the existing currently suspended dumping investigation resumes with the imposition of some very serious tariffs onto the Russian industry, and they decide, look, that’s just not worth it. We’re going to withdraw

Matthew Gordon: That’s a very interesting scenario that you’ve described, because it would suggest it, one could argue that the US can’t do without some Russian supply. And if that is the case, , what is the number? Is that 20% number reasonable? Because, obviously, if the price goes up for utilities, it’s not significant in the scheme of the total investment in terms of a reactor, but it’s significant in terms of ongoing costs, given that the capital expenditure is a sunk cost now. And when they’re competing against gas and renewables, it’s meaningful to them. But the problem has been that some utilities are not sticking to that 20% number. Isn’t that just a case of, so why are we focusing on the Russians and not on the utility buyers who are not regulated or not sticking to that 20% number?

Brandon Munro: Well, it’s a global number. So, presumably, those utilities were looking to get out ahead of each other and speculatively scoop the cheap material away from each other. And I guess they’re just taking their chances on the extension of the Russian Suspension Agreement and their material being available to them.

Matthew Gordon: Can I just clarify the terminology: when you say global, you mean a global US utility number?

Brandon Munro:  I beg your pardon. Yes. It’s an aggregate number amongst –

Matthew Gordon: So, first come first served is the attitude?

Brandon Munro: Yes. But your point, what I take from that point that you make is, it’s not going to be a total disaster for the US utilities, but it will increase their costs and it will increase their cost quite significantly. They pay about 20% of their operating costs as the total nuclear fuel. Now, that’s your U308 through to your conversion, through to your enrichment, your fabrication and storage and so on. But enrichment at the moment is a relatively minor component of that. But if you saw a market suddenly rebalance because all of the Western enrichment capacity is removed by US utilities filling the gap and putting their finger in the dyke, well, then you’ll see proper price discovery and probably market prices in SWU, which will increase that little component that’s enrichment and possibly have a 3% or 4% increase in the cost of electricity delivery for many of those utilities.

Matthew Gordon: Brandon, we are going to switch over to the Crux Investor Club section for Crux Investor Club members. We have got 2 quite good stories, this week; quite insightful, and impactful in terms of investment decision-making. I’m going to do that. Thank you very much, everyone for watching the show this week.

Brandon Munro: It was quite fun answering all of those random questions. Normally with our weekly chat, we have got like a nice thread and I’ve had a bit of chance to think about it and so on. And so, yes, that’s fun.

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.

Dustin Garrow #05 – Mid 2021 before Term-Contracts Start Being Signed

Interview with Dustin Garrow, uranium market commentator.

What did uranium-expert Garrow have to tell us about the world of uranium this week? The US House Appropriations Committee has stated that it will not approve the funding of the $150M uranium reserve, though some uranium bulls think this judgement will be revised once the DoE can answer some of the committee’s pressing questions about how exactly the reserve will be implemented. While there have been meetings between uranium producers and the government representatives for years, they’ve not been able to push this over the line. It’s clear the government was already aware of many of the issues plaguing the uranium sector, so this decision isn’t impulsive or surprising, though it is very disappointing for uranium juniors who are crying out for a light at the end of the tunnel.

A red flag on May 11th should have been a clear indication for uranium investors that this was how things would pan out: the Nuclear Energy Department at the DoE stated that “within a year they hope to have (their) procurement process clearly delineated.” It was clear the conversations were taking the judgement well into 2021.

Has technology and R&D been a distraction? The US government has been focussing a lot on research, SMRs, and funding export reactors of late, and this has potentially taken much-needed attention away from a potential uranium reserve. Garrow thinks a lot of these issues are geopolitical, with the US “diligently” trying to fund its reactor sales outside of the country and penetrate the export reactor market. Expect some more challenges yet from China and Russia. And a lot of under-cutting. Not sure too many commercial companies are willing to take the risk.

The uranium producers are absolutely down to their barebones, and while Energy Fuels has stated it will ‘produce’ c.200,000lbs of uranium this year (via recycling, alternate feeds, by-products, spot purchases, etc,) this comes from the reclamation services and not mining.

Matthew Gordon talks to Dustin Garrow, July 2020

The Senate version of the appropriations bill continues to provide hope to North American uranium players. There is optimism that this version of the bill still contains the US$150M reserve. He thinks this may well be retained come the end of the process.

The decision regarding the Russian Suspension Agreement (RSA) has been pushed down the road to December 2020, until after the US elections, at which point it is likely to be extended. Is this the utilities’ lobbyists at work? Nice cheap Russian uranium is the prize. But it will come at a cost to US uranium producers if not resolved. The election is just that: an election. Garrow doesn’t think it will make too much difference to the uranium sector whether the Democrats or Republicans claw their way into the Oval Office. Bringing back manufacturing into the US has been a Trump doctrine since day 1, but Biden is now onboard too.

There is a broad spectrum of opinions around the RSA. Through the Ad Hoc committee, the US producers are pushing hard to have the agreement expired so that the limits would be lowered albeit in a staggered manner. Utilities would argue that the current levels are ideal. Enrichment contracts have been signed recently for post-2020, and some of them have been contracted for more than the 20% in anticipation of the limit on Russian enrichment going away. These have been “price suppressive” according to the Department of Commerce. They have recommended the agreement should be lifted and the underlying antidumping investigation from the 90s should be reinstated, placing very high tariffs on Russian enrichment. On the other hand, the Russians might not want to put up with another 10-15 years of paperwork and auditing for what is, essentially, a very small part of the global enrichment market (3Mlbs/yr in America, c. 53Mlbs/yr globally). The Russians have been held at the 20% level since conception, and they have publicly sought a rise to 30-40%. If it doubles to 40% and 6Mlbs, Russia might start being interested again. At some level, commercially, it would make sense that the Russians walk away, especially considering the anti-Russian sentiment that is currently rife in the U.S. administration. On another level, they would lose a relatively cheap lever in off-book negotiations with the US govt.

There is not enough inventory in the market right now because the more mobile, lower-priced inventory is being depleted, and COVID-19 has massively impaired production, especially for KazAtomProm’s partners. The volumes are down but the price has held relatively stable, which Garrow thinks is a positive sign. What a lot of uranium investors don’t realise is how long a process restarting production is; it is not just a case of flipping a switch. For example, KazAtomProm has completely halted its well-field development programme. Its production is coming from existing well-fields. Once it is safe to go out and mine uranium, Garrow expects it to be into the middle of 2021, even if the ramp-up starts before the end of 2020, until we are back to some semblance of supply normality.

In order to press the restart button, long-term contracts will be needed. Which makes Cameco’s decision to restart Cigar Lake intriguing. Have they negotiated term-contracts with utilities? If so what are the terms and when will the market find out. That would set the cat amongst the pigeons. For everyone else though, everything appears to be contingent on contracts next yet signed, and the solution could eventually take a phased approach: if KazAtomProm and Cameco are satisfied and start ramping up, then the producers that are one step down the ladder. We could be well into 2022 before some of the newer want to be producers get a shot; even if their projects are close to shovel-ready, there is plenty of work to do regarding financing the CAPEX, the multitude of licences and operational to knowhow put in to action.

There is only one nuclear conference this year which is “hanging by its claws” in Las Vegas at the end of October 2020, and while 2020 had originally looked like a year when utilities would be much more active, it could well take until well into next year for any kind of meaningful market engagement. Very few people are travelling to visit the utilities right now, and these sorts of deals simply aren’t going to be carved out over the phone. It doesn’t look like there is going to be a rapid take up in term-contracts. It could be very gradual, and Q3/21 is the date we’ve heard be earmarked by many experts. Uranium price discovery may start slowly this year but getting to levels which uranium juniors need for commercial decision making is some way off yet.

There has been a surge of M&A in the space recently, as North American uranium miners target Energy Fuels’ White Mesa Mill to toll their uranium. Garrow states that uranium companies need multiple mines to get anywhere near the volume needed to be a player that interests the utilities. And as for the assets that are being bought up, Garrow just sighs. And when Garrow sighs, investors should too!

What did you make of Dustin Garrow? What questions would you like us to ask him in the future?

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