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
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
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
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
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
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
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
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
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
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
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.