Dustin Garrow, former Paladin Director, and industry advisor to Uranium companies, Uranium ETFs and Uranium Funds, was involved in writing the WNA Nuclear Fuel report, especially the uranium chapter. A lot of investors on social media are seeing the findings of the report as a signal for a recovery in the uranium price. We ask Dustin Garrow if this a realistic assumption.
Analysts say there needs to be production at higher price. This report says ‘yes there needs to be more investment in the fuel cycle and particularly uranium. So everyone is saying the same thing. The Demand forecast marginally positive. Dustin tell some of the factors for altering the data from companies to show a more realistic outlook.
Will some of the junior uranium companies fall off the cliff if the price discovery takes longer than hoped. How will their strategies need to change?
Certainty is still not here, but the mood is more positive. Dustin Garrow saw 10-12 investment groups which is more than have attended more many years. Not a lot of the US utilities. He talks about conversations with generalist investors. And also an update about the 90 Day Working Group.
The report has previously had a reputation of being vague. But a lot of hard work has gone in to making it a little bit more commercial. But still avoids talking about the economics! It doesn’t talk price. Surprised, we were. But it does now discuss long-term contracts and term market.
Did you know that the EU and US represents over 50% of the uranium requirements. 1.9 billion pounds of uranium, and 90% was on long-term contracts.
- WNA Expectations
- WNA Fuel Report: What Will it Do For The Market?
- Current Mood in The Market: When Will Price Discovery Happen?
- Struggles of Raising Funds in The Junior Space
- Investment Hacks: What Should You Look Out For Before Investing?
- Buying Physical Uranium: What Should You Know?
Click here to watch the interview.
Matthew Gordon: It has. We, like you, have been trotting around, meeting people, interviewing people at the WNA Symposium London, getting a sense of what the mood is. What do you want to get out of it?
Dustin Garrow: I think an important part is the biannual market Fuel Report from the WNA. I happen to have been involved in the uranium chapter. And the initial reactions have been very positive from outside organizations and people. I think the report reflects more of the concern of some of the fuel cycle participants. And it goes not just to uranium, but also the conversion side. I think the industry perspective now is more in line with what I’ve been seeing, particularly in the uranium side, on the supply issues that are looming.
Matthew Gordon: The WNA Fuel Report comes out every two years. It has had a reputation of being just a little bit vague. It paints a broad picture. But this year, a lot of hard work has gone into it. And we’ve met some of the authors of that. You were involved as well. It’s just that little bit more commercial. It’s getting to where it needs to be. You were involved with the uranium component. What was the brief?
Dustin Garrow: I’ve been involved in the report for many series of it. It was originally designed as an internal communication document. It wasn’t nearly as critical as to how it was put together. And the other thing is you can’t talk economics, can’t talk prices for anti-competitive reasons. But then it became the industry position, as particularly more investor groups, began to look in the uranium side. So, there’s been that lengthy transition. Still can’t talk economics. But it now it addresses things like the need for long-term contracts. There is still a big hurdle at this point. A lot of companies are at the starting gate in various forms, but without the utilities committing to more than a 2-3 forward year agreement, they can’t raise financing. It’s now being recognized, the term-market, it’s role in this industry. I looked at the US and the EU deliveries since 2000. There’s really good data on both the regions, which represents more than 50% of uranium requirements. Over that period, they’ve taken delivery of 1.9Bn lbs of uranium and 91% was under long-term contracts. So, the idea that the utilities rely on the spot market just doesn’t reflect reality. They still buy about 20Mlbs a year in the spot.
Matthew Gordon: It talks about long-term contracts which is a really important part of the industry for sure, but it’s not giving any indication around price because it can’t be anti-competitive.
Dustin Garrow: So you say things like ‘adequate’. And that depends on the specific company. What’s adequate for a Cameco is not adequate for a new build project somewhere else. But it’s a crucial element in the progression of the production facilities.
Matthew Gordon: If I look at people like TradeTech or UXC, they can get into this. And I think is important for commercial reasons that they can get into this. They sell those reports into utilities funds etc. But these interviews are for the ordinary guy like me and you, who want to buy shares in equities. What does this report do for them? Does it give certainty to the marketplace so therefore, people start behaving in a different way and therefore the equities react?
Dustin Garrow: What’s important is a lot of the investment analysts have concluded that there is a need for more production and it will be at a higher price. It has to be because of the economics of the new production facilities. The WNA, without talking the economic side, is saying, y’es, there is a need for more investments in the fuel cycle and particularly uranium’. So now everyone is saying the same thing. Now the contrarian would say, ‘well, now it’s time to look over the other direction’. I think one thing that was brought out in the WNA Fuel Report is the demand forecast. Recently the WNA had a low-case which had demand eventually dropping off. Well, now even the low-case is a positive I think it’s 0.1% growth. But it’s not a drop off. So, across the three cases, the reference case is about 2% growth per year and the higher one is 3.5%
Matthew Gordon: How did that how did they marry this up with the supply case? Most companies will overstate, will be a little bit hopeful about what they’re going to be capable of doing, but they are restricted by a number of factors.
Dustin Garrow: I think what what’s another important thing is there’s more judgment being put into the WNA Fuel Report. In other words, you can take the public statements of all these companies and say, ‘well, his history suggests that it’s going to take longer, it’s going to be slower’, or whatever and more of that’s going in the report.
Matthew Gordon: That’s great news.
Dustin Garrow: So, it’s not like, ‘oh, no, you’ve got to say just public information’. So, there’s some judgment that goes into it from people…Frank Haney, who ran the working group. He’s retiring next year after 50 years in the industry. So, we have some long beards involved.
Matthew Gordon: So that’s the WNA Fuel Report. Generally, very positively received. It’s certainly an upgrade from where it’s been, a lot of hard work gone into it and a lot more realism. Let’s talk about mood. I’ve been speaking to people and I’d say the general mood is positive, without necessarily being certain. It’s better than it was 6 months ago when we first started discovering the world of uranium. I’ve had some fantastically wide-ranging views on when price discovery happens from 3 months through to 18 months. Now everyone’s got a different business model, and everyone has different needs. But the people sitting in the middle are thinking maybe it’s going to happen next year. What are you hearing?
Dustin Garrow: I thought it was interesting that at the WNA symposium I think there were ten or twelve investment groups represented. We’ve never had that before. We’ve had maybe 2 or 3.
Matthew Gordon: And these are generalists?
Dustin Garrow: These are these are the guys that are either going to buy physical or buy inequities. They’re the guys that are going to put the money up for the industry. And someone said last night at a dinner I attended… when you’ve been around in this business so long, you walk in a room and you sense the mood, and it is on that positive side by the producers, either real or those that plan to come into production. The meetings that I’ve had outside of this symposium had been very positive. It’s not, ‘oh, well, what about the Japanese? They’re never going to’…It’s more like, ‘I’m on board now. When is it going to happen?’. The Section 232 in the United States… we had the July 12th memorandum from the President, which some people interpreted as, he had no interest in helping the domestic industry. But if you read his statement, it was ‘at this time’. And now the 90 Day Working Group will come out with some kind of remedy. But it will be uranium conversion, enrichment and probably be pretty neutral regarding the utilities. What’s going to be their exposure? But the point being, it’s not going to affect the general market. It’ll be kind of played out in support of the US government. But I think some of the utilities, particularly in the US, have the big unfilled needs, are saying, ‘well, I still don’t know what’s going to come out’. We’ll have that answer by mid-October. And then I think that they’ll start making their procurement decisions.
Matthew Gordon: We’ve had similar conversations. I think quotas, tariffs, subsidies. No-one knows.
Dustin Garrow: I think that’s all off the table. There will be some form of government support just directly. It won’t limit imports of other origins or anything like that.
Matthew Gordon: Let’s step back and see what happens there. But I think that’s going to be very interesting, obviously, for the US uranium companies. One of yours, Energy Fuels, obviously waiting to see what’s happening there.
Dustin Garrow: I think that activity in the term-market is what’s going to help raise the spot price. So, it’s not going to be the spot price goes up and then there’s term activity. The utilities are already doing their due diligence. They’re contacting suppliers. How much have you got? What timeframe? What kind of pricing are you looking for? That’s a precursor for them coming out. And like one of the US utilities was just in the long-term market, 2021-2025… So, again, they’re starting the process that they’ve not been willing to do because of the price differentials for a number of years.
Matthew Gordon: So, you were at the Eight Capital dinner last night. What were you hearing? What were the questions that are being asked?
Dustin Garrow: Well, no one’s saying, ‘well, is the price going to drop?’. What are the factors that are going to move it up and when do we see those asserting themselves? Now, some of us, we are die hard optimists. We could start to see it before the end of the year. But I think by first quarter, keep in mind, there’s a big conference in Nashville at the end of October, where there’s only like 3 US utilities here. They’ll all be in Nashville; the producers will be there. I think there’ll be much more discussion because we’ll know what the working group recommendation is or outcome. So, we could see some of them will say, ‘well, I’m going to get out there now. I’m not going to wait’. And we could start to see an uptick in term-contracts.
Matthew Gordon: Based on your assertion that you think it’s pretty soon, a lot of companies are going to like that news. Not saying it’s going to happen, just that they’re going to like your view. If that doesn’t happen… we’ve been speaking to a few people and we’ve been interviewing a few people. So, we’ve got a broad sense of what’s happening with it with a junior uranium space. A lot of them are needing to raise capital to keep going. They may get to the end of the year, but that’s it. Do you feel that the funds or the institutions that you’re talking to are ready to have those conversations with these juniors or are they going to struggle?
Dustin Garrow: I think some, because they have a good business plan, good projects, they’ll be able to maybe live on the drip for a while. They’re not going to get that big multi $100M financing done without term-contracts. I think they may be optimistic on how long that takes. It’s not that the price goes up, the next day the phone rings and all the utilities sign big contracts and by the end of the week away you go. It can take months and months. And at some point, the Cameco’s enter the market. And at some point, you’re going to see a lot of activity once you get to a certain degree.
Matthew Gordon: That’s great saying that because I think if I look at the retail following that we’ve got within uranium. Very passionate, very optimistic and patient group of people, very knowledgeable too. But they shouldn’t expect an immediate pop in price. There’ll be a gradual escalation on price. Is that what you’re saying? That could be as well as long as 12 months before it gets to where it needs to be? When does it get to $50?
Dustin Garrow: Well the term-price at $30 we could see $40 very quickly, because I think that’s the next plateau. A bit of contracting by some, then another pop up to $50. Well, how long does that take? Are we dictated to by the utilities when they come on the market? So, yes, by some time. First half of next year should you see a lot of term-contracting activity. And it’ll affect the spot-price. I think we’re within a 6-month window.
Matthew Gordon: I’m going to go back to my institutional days. I’m looking at price, if it hits $40. Most of these companies are still under water at $50-$55. So, in a meaningful way, it doesn’t matter if it is $20 or $40, but for the funds, if they see contracts in place, they have security. They still have to take a guess on what the future holds. And that the company can get product to the utilities. They’re got to say this will get to $55. That’s only break even for some of these companies. Some these companies need to make more than that to be able to pay back anything they have borrowed. So, there’s still a lot of uncertainty in terms of ability to raise capital. Is there not, at this point?
Dustin Garrow: Yes. That’s why some of them are out meeting, a lot of meetings, a lot of discussions and preparation for them. Then you go out and you do your whatever amount of term-contracting. I think the financing is available, but with the right conditions.
Matthew Gordon. We’ve been meeting and talking to a lot of the funds and institutions, and they’re generalists who, as you say, are coming back in and having a look at what’s going on. They’re having to get back up to speed, to understand what’s happening in the market, and they’ve going to take a view on what the future looks like. But, yes, I think the money is there, under the right conditionas. But that is going to come down to 2 quite important things that I’ve discovered in the past 6 months, management teams who have produced uranium and got it into market. Not many of them, right? And then, of course, the basic fundamentals of mining, is this a good asset? Can you get it out of the ground, let alone get it into market?
Dustin Garrow: Well, as you know, we’re having more specific questions. In other words, will a rising tide lift all boats? I think some of the investors that have either been in the space or more sophisticated, whatever, are saying, well, now of this group of companies, where should I place my funds? I think probably the primary question that I’m getting back is, ‘I’m on board, I think it’s great, next year. But where do I place my funds?’ And part of it is, like you say, management teams, the experience. And that’s hard to come by these days. Very difficult. There’s just not many veterans left. And uranium is a unique commodity because of the political, social issues surrounding it.
Matthew Gordon: I’ve been calling it in the past few days ‘Mining +’. Mining’s hard enough. Then you have the uranium component, which is a political hot bed. And some of those geopolitical concerns. But without getting at the macro, we all agree that the general consensus is it’s positive, a huge infrastructure needs filling. But if we come back to the management team. There’s about 50-55 companies in the uranium space at the moment. As the market recovers, you’re going to have new entrants coming in. It’s hard to imagine that any of them are going to have relevant uranium experience.
Dustin Garrow: It will be difficult.
Matthew Gordon: So, again, for our Subscribers, that’s something that they need to consider when making an investment decision. A new story doesn’t necessarily equate to capital appreciation, because these new entrants are unlikely to get into production with new management teams with no experience. Not impossible, just unlikely.
Dustin Garrow: During the last uplift, there were like 400 / 500 companies. I was at PDAC and everybody was tacking up a sign. ‘We also do uranium’, on top of everything else. And geologists with some drill logs they were they were getting funded. I think this time around it will be more difficult, because the questions will be asked, ‘who is behind it?’, peal it to the next layer and. And who’s going to do this? I want names. And that’s going to be a difficult part of the equation for some of the companies to convince funds. And it goes into the term-contracting. The utilities will say, ‘I’ll do a 200,000lbs /300,000lbs contract. I’m not going to do 500,000lbs. I don’t know you guys. I don’t know your project. It’s not built. So, I’m going to be cautious’. So, that means junior companies have to even do more contracts than maybe an established producer, of which there aren’t many left.
Matthew Gordon: Yes. A few things going on there. If you don’t have anyone who’s produced or been involved with producing uranium before, as an investor, you’ve got to think twice because it’s complex. It is not just drilling holes in the ground, finding it, digging it. It’s not that simple. There’s what happens afterwards. The bit that you’ve got a huge track record on was, I’m not selling you by the way… I’m just referencing that you have huge experience in this, the contract side of things. That’s not easy because, time comes into this. There are buying cycles. Term-contracts are 5, 7 years, aren’t they?
Dustin Garrow: They come in cycles. And just as a quick side note, when we did the bankable contracts for Langer Heinrich, the banks laid out very specific requirements. How much volume? At what price? Over so many years. So, we had to then construct a contracting plan that met all those needs. And sometimes you have holes and the banks go ‘fill the hole before I’m going to press that release of funds’. So, there’s more to it than like I said, the phone rings and you pass around contracts and you’re done. Won’t happen that way. It’s not to say these other companies can’t be successful. It just may take a bit more time. They may have to be more flexible in contracting.
Matthew Gordon: I think the phrase I heard yesterday was that ‘they don’t know what they don’t know’.
Dustin Garrow: And it’ll come to their front door.
Matthew Gordon: And that takes time. And that takes money. And sometimes they can’t fix it. So, a lot of things to be cautious of as an investor in the uranium space, unless you get a team that’s been there, done it before. I think that’s important because a lot of people, generalists, I’m not talking about the wonderful uranium crowd that have been in there through thick and thin over the last two years. I’m talking about generalists coming back home when uranium does kickback, will need to understand that. It’s not a case of all boats float on a high tide. I fundamentally disagree with that statement. I think all boats float for a while. And then the inevitable happens, they sink. So that’s great if you get it on the way up. But if you’re if you’re left on the boat, you’re in trouble.
Dustin Garrow: TradeTech, one of the two long time industry consulting firms has just put out a study on production. And it goes beyond, ‘well, here are the costs’. They look at full cost because a new project’s not going to be built on cash costs only, but then they try to look at what are the impediments? What about the secondary licensing? What about the mine plans? What about contract? Have they gone out and approached the market? Are they ready to do that? So, it’s kind of a guideline, a cookbook, to look at and go, ‘well, you know, just because you’ve got the best technical project, you may not be in the first mover group. You may not veto the third’, because of where the projects located for a number of reasons. So, the industry is trying to help some of the consulting firms in that regard.
Matthew Gordon: But that’s fine for people like you and me. We can afford that report. I saw it yesterday. Great report. And we can interpret that and extrapolate what we want from that for retail, family office, high net worth. They’re not going pay for that report. They don’t have access to that. They’re going to have to trust the information that they’ve got access to. And that’s why I’m interested in talking to people like you, you’ve been around the block a few times. You’ve seen a few cycles, influencers who understand what’s going on in the uranium space. But it can also help bring to light some of these issues. What the company says and what the company is capable doing are sometimes polar opposites. They’re very far apart and that’s the difference between making money and losing money. And that’s important. This is investor’s money. That’s what I care about.
Dustin Garrow: I think money will be made in this space again. I think it will probably be on a more selective basis.
Matthew Gordon: Pick the right team. The right boat.
Dustin Garrow: Yes. And a lot of it’s the right team that can get things done.
Matthew Gordon: Are you seeing any good stories out there? Over the past 2-3 days and over the past six month I’ve heard different business models and I don’t mean physical or ETFs or equities. I just mean companies which are up or coming at it in a different way, which makes sense, or companies which have got all the fundamentals in place. What type of company would you invest in? Or advocate in investing in?
Dustin Garrow: I think you’ve hit the high points, those that can demonstrate some experience in the commodity and mining in general. That always helps. If they’re not totally cash starved at the moment, that’s a plus. It gives them a little more breathing room so they can go out and meet with utilities and lay the groundwork. And if it’s like, ‘well we can’t go out, we can’t talk to anybody, we don’t have any money’, then it’ll be tough for the utilities to put you on their supplier list. When they don’t see you and you may have the best widget, but they can’t see it. The utilities need yellow cake in the can. They aren’t that interested in your share price. They can’t stuff shares or certificates in their reactor. They want to make sure in 2023 on June 1st you’re going to deliver that 100,000lbs, because they work it into their fuel plan. So that’s what they’re after. And so it goes beyond just the investor side. You’ve got to convince the customers that you’ve got credibility, particularly with new projects. If you’re a new person on the block it’s it can be a challenge.
Matthew Gordon: I just talked about something which was buying physical uranium. There’s a company in the UK called Yellow Cake. You’ve got one in North America which is called Uranium Participation Corporation (UPC). How does that work? What is buying physical uranium?
Dustin Garrow: There’s really more than one model and I’ll talk UPC, Yellow Cake. They’re being characterized as sequesters of the uranium. UPC has held their inventory for 15 years. And Yellow Cake, the business model, as you know, I’m chief commercial officer for Yellow Cake. Is to accumulate that inventory at good acquisition cost. The current 9.4Mlbs we acquired at under $22. Buy it and hold it for an extended period, add to it when the stars are aligned correctly to where we go out and raise money, buy more. We’ve got the option with the Kazakhs. And it’s an investment that the investor can make up a bet on the market. In other words, ‘I think it’s going to keep going up. I will accumulate shares’. At some point they may say it’s $45-50, could come off. Then they’ll take a different decision. But it’s basically that store of value that they can make decisions on.
Matthew Gordon: And it’s based purely on the price of uranium spot that that day. ‘I bought it $25, it’s now at $40, I’m checking out’, because it just happens to be in the form of shares. You’re buying and selling physical product.
Dustin Garrow: But the material doesn’t like come in the market. Now there’s a different group, which there’s 6, 8, 10 investors that have bought physical. Now that means they hold the U308 at a conversion facility. They come in, they add to that when they think the price is going up. And at some point, I think when they say, ‘well, OK, I’ve doubled my money in six months and I’ll sell some of it off’. I think that happened earlier this year. So, that’s a different model.
Matthew Gordon: One is physically selling off, but that’s a group of institutional guys, presumably. The first one you described was there’s an inventory sitting there. So, you can you can buy shares in that. It will continue to sit there. And once you want to sell your share, you can sell it someone else. But the uranium still remains there. It’s not going into the market per se. It’s a security.
Dustin Garrow: Yes, it’s a lot easier than if you buy physical because then you get into the storage accounts. There’s fees, there’s all kinds of things. Not to say that’s a bad part of a three-legged stool, but it’s different. And I know the analysts are really struggling with ‘how do you model that?’. Cameco has mentioned it on their calls. But apparently late last year, that group bought 8-10Mlbs. Could have been more, could have been less. And I’m asked how and when will they sell? At what price? Some might sell at $35. They go, ‘hey, I bought it at $25 I’ll sell it’. That’s a great deal, I’ll go do something else. Others may say this thing’s rate going up quickly. I’ll hold to $50. They may sell at $35 and come back at $40. So, it’s a growing part of the spot market that to some degree you can’t model. It’s like, ‘well, how do we model this? We know what the utilities are going to do. We know the producer buying’. I contend you can’t model it. If it was one person you go, well, I can kind of figure out what they’re doing, but it’s now a diverse group all over the world. South America. Australia. North America.
Matthew Gordon: Right, so if I’m looking at something like Yellow Cake. You buy at $22. If the price goes down. There’s nothing you can do about that. So, the value of what you bought is less than what you paid for it. But your expectation by investors buying shares is that it’s going to go up. So, there’s no equity risk per se, it’s just purely on the products above the ground sitting in containers, Cameco’s facility or wherever it’s held. Whereas equities, a bit more exposure to all the risks below the ground and management decision making and availability of cash. So, it’s just a different risk profile.
Dustin Garrow: So, it allows you to participate in the uranium space by either Yellow Cake, UPC or physical. I understand one of the large banks that’s been involved in buying physical has been providing that service. You don’t have to get a supplier or storage agreement. We’ll do it under ours. So, there’s the entrepreneurial side of that, for a fee. So, then that takes some of the goodness out of it. And then it’s the equities. Everybody says, well I’m going to buy Cameco. Well yes. They’re a fundamental part of the business. But actually their upsides are limited by ceiling prices and defined price contracts. So, if the price goes to above $100, if you look at their sensitivity table, they start to hit a ceiling. Now, on the downside, they don’t go down below about $30. So, they’ve got a collar. And that’s part of their business model. I’m not sure everybody looks at that. They think, well, if the price goes to $200 it great but in reality Cameco will hit their ceiling.
Matthew Gordon: It’s also not good because there will be a lot of entrants, new entrants in at that point.
Dustin Garrow: I mean but then the different strategy, different risk.
Matthew Gordon: So, to finish off because I know you’ve got places to be, you’re meeting lots of people today. You think uranium people should be looking at it, should be considering as part of their investment portfolio. General consensus is quite positive.
Dustin Garrow: Yes. More and more people are looking. I did a roadshow in April with yellowcake and it was mostly North America. And certainly, we did Boston, New York, but out on the West Coast. Los Angeles. San Diego. So, we see a broader spectrum of interest. And I think it’s waiting on the Section 232 though, we don’t know what that kind of means. But once the green light goes, even if it’s a pale green. I think there’s going to be a lot of investment.
Matthew Gordon: People will be waiting until then, I think generalists are waiting till then, see what that outcome is, whatever it is, some degree of certainty about how to move forward.
Dustin Garrow: Figure out what does it mean and then the utilities will react so you’ll see that term market start to pick up.
Matthew Gordon: Dustin. Good to see you face to face here in London. Enjoy the rest of your time here. I think you’re diving on aeroplane tomorrow. We’ll catch up hopefully in October.