Uranium Insider – Rage, rage, against the dying of the light (Transcript)

A conversation with Justin Huhn, writer of the Uranium Insider newsletter and Twitter influencer

CLICK HERE to watch.

Justin is an avid reader and consumer of all things uranium and his newsletter is very popular with uranium bulls. We spoke with Justin a few weeks ago and were keen to get his take on the recent US DOE announcement with regards to a $150M x 10-year budget for acquiring domestic US uranium for the protection of US nuclear energy and security requirements. What did you make of it? Leave a comment below.

1:52 – DOE Announcement: Have Share Prices Moved?
4:45 – An Overview of Energy Fuel’s News Release
7:38 – What Does the Market Want to Hear to Allow for it to Start Moving?
9:39 – USA vs China & Russia: Becoming Relevant in the Uranium Space Again
12:19 – Problems of the US Nuclear Industry
16:59 – Uranium Investor Hopes and Expectations: What’s Going to Move the Price? 21:35 – Changes in the Buying Behaviours of Utilities
24:06 – A Look at Company Strategies and Business Models

Justin’s page: https://www.uraniuminsider.com/

Matthew Gordon: Hey Justin, how are you?

Justin Huhn: Doing very well, Matthew. How are you?

Matthew Gordon: Yes, really positive response from our last conversation. I enjoyed it. I learnt some stuff. I guess there’s been a few things starting to hit the market. We’ve seen a few things from the DOE; a few numbers thrown out there. What’s your reaction? In fact, I tell you what, before you do that, can I just say cheers? I think we should say cheers, shouldn’t we? Shall we do this for the team? There you go. There you go. That’s what I’m talking about.

We obviously read that release last week talking about USD$150M over 10-years being made available to purchase domestically produced Uranium in the US. What was your reaction when you saw that?

Justin Huhn: My reaction obviously was positive. I think that it was nice to see it actually come official from leaks from last fall. So I was glad to see that portion, I mean, technically it’s not over with. It still needs to be, the budget needs to be approved and the approval process is year over year so they can stay there as an intention for a 10-year program. But it’s really a yearly by, a year by year approval process for the budget. But it’s a good start. It’s obviously something, it’s something which is what we’ve just been hoping for something to come of this situation that’s been just so long in the tooth. So it’s not, it’s clearly not –

Matthew Gordon: What have you heard in the market when you’ve been talking to people who are writing to you…what are people getting back to you? I mean, do they, I know it’s something, but is it enough? Is it just the first salvo? And we’ve heard conversation about some more information being released in the next couple of weeks. What do you think you, or people you’ve been speaking to need to see in the next couple of weeks?

Justin Huhn: I mean, I don’t know that I need to necessarily see anything in the next couple of weeks, do I think it’s enough? No. But it’s something, you know, the intention from that program was even stated that there would be two, maybe three companies supported by it. And I think clearly that’s, you know, the obvious would be UR energy and energy fuels; UR Energy being the lowest cost. Current producer in the US Energy Fuels, they’re sitting on a 500,000lbs of inventory, just sitting in cans ready to sell. So those would be the first immediate beneficiaries. Again, it’s for 2021, so I don’t know what happens between now and then, but I think really, what I’m hoping the overall result from not only of this buying program, but whatever else comes out of the working group, recommendations, just kind of gives some sense of relief or closure to the industry and we would like to see prices kind of start to move. I mean, that’s ultimately the result that I think most investors are looking for unless people are speculating on the US companies for this specific direct buying.

Matthew Gordon: Well, if I look at share price, do you think you’ve seen a reaction? Do you think we’ve seen a positive reaction?

Justin Huhn: If you look back only over the past week or two, then it looks relatively positive. Well, for some of the stocks, you know, Energy Fuels announced that they bought deals, so the share price got smacked.

Matthew Gordon: So, okay. Are you a buyer of their news release? Did you buy what they said in the news release as to the use of proceeds? Why do you think they did it?

Justin Huhn: I don’t know. I mean, I’m going to have to just wait and see and let Mark answer that in your interview. I mean, they’ve got a huge cash burn. They burn what, USD$30M a year or something like that. So it’s a big amount to make every year and they need money. So I think that it seems like investor sentiment is not all that, they’re not all that happy about it. I personally don’t own the stock, but I think that they supposedly have access to ATM funds, at the market share issuance, at market prices, so why offer a bought deal at a 10% discount? You know, the retail investor, again, in this kind of market that’s just consolidating, moving sideways or down. It’s like the retail investors; like you have got to play defence and they’re just getting smacked around. And of course, the beneficiary to this deal is the entity that’s taking place in the bought deal. They are the ones that win. But you know, they need the money and it’s like, I’m not surprised and I don’t know if anybody is surprised. I can’t speak for Mark.

Matthew Gordon: Yes, well, we’re going to speak to him on Friday, right? So we’re going to hear from the guy himself and we were trying to work out why now, as well. You know, clearly they are in the middle of it, right? So they’re not going to say anything, but you know, if they get this thing closed off in the next few days, it usually takes about a week for these things, they might give us an insight. I mean we could only speculate, but it seemed to be, his view seems to be like get on the offence; he talked about defence there. He’s like, he’s going to get on the offense because he’s either reading something really big into the announcement from the DOE, and he knows something we don’t, or it can be as simple as; well actually I need to bolster my balance sheet here because our burn is our burn, a $2M a month.

Or again, just trying to work out, and you know, they’ve obviously got that convert coming due at the end of the year as well. So I think you need to start having conversations, and I think you don’t have a conversation about something like that, in a position of weakness, ie. a balance sheet which is struggling. You want it with cash there because then you get better terms. I know because I’ve sat at the other side of the table. So yes, I guess we’ll wait till Friday, but yes, it’s interesting. The market really went negative on that.

Justin Huhn: I don’t want to make too many assumptions, but you know, I mean they, who knows, like you said, and he might know something that none of us do and there could be a very good reason for it. It’s hard to speculate on that.

Matthew Gordon: Exactly. Yes, exactly. Exactly. So what do you think the DOE is going to come out and say? I know you said you don’t need to see anything, but what, what do you think the market needs? Because like I said, it’s not a lot of money. It’s not a lot, a whole lot of cash. And we’re talking about a couple of companies with, you know, not that many employees. So there’s a whole new raft of nuclear reactors out there that are either coming to end of life or aren’t making money. I mean, what does the DOE need to say to the market to kind of get people really excited, really juiced up?

Justin Huhn: That’s a good question. I honestly don’t know that words are going to go that far at this point. I think that the spot market needs to move in order for the equities to react., I mean, I could be wrong. They could come out and say something, Oh, we’re, we’re 10 X  the buying program. Obviously that would make everything move like crazy, but I don’t see that happening. I do think that there’s going to be further working group recommendations that we’re supposedly going to hear this week, next week. I think Secretary Brouillette said that, I just mentioned, it’ll be a few days or a week or two. So hopefully that actually happens. There’s multiple leaks coming out and him speaking directly, saying that’s coming. So I think that the overall industry is definitely going to get some more support in the way of conversion support or enrichment support. We could see some federal mining bans being lifted. We could see some ease of permitting. I think there’s going to be huge support for SMRs, which there already seems to be, I’m very pleasantly surprised at how quickly that seems to be moving. And I think that’s going to be the United States sort of ace in the hole when it comes to maintaining some sense of competitive advantage globally up against the Chinese and the Russians with their exports.

They announced that…yes, well the Chinese and the Russians have this export market for nuclear reactors where they’re essentially making deals with other countries where they will fund the building of the plants. They will build the plant. They will train operators and they’ll fuel the reactor for the life of the reactor. And so it’s not only is it just kind of a brilliant move just from a business sense, but it gives these countries just insane leverage politically. So in the United States I think is just completely fallen off the radar when it comes to international dealings with nuclear.

And so the small modular reactors, the SMRs that are being built by a couple of companies in the United States now, and are being tested. And there seems to be big support from the Government in aiding the funding of the research and potentially utilising this new technology in exports. And there’s a whole new market, you know, like a full size, 1,000 megawatt reactor is multiple, sometimes tens of billions of dollars to build. And it’s a massive power generation that needs a big grid to even accept that type of energy. So these smaller, you know, a couple of hundred megawatts and even smaller than that, they can be placed in much smaller, how would you say; municipalities around the world.

And so we’ll see. It’s looking quite positive. And the other thing with the SMRs is, I don’t think potential future growth from SMRs is baked into any sort of modelling at this point because it’s so new; it could be a very big positive demand story over the next, let’s say five to 10-years.

Matthew Gordon: Yes, when you’re talking about technology there, competing technology there, to get the Americans back at the table, as it were. But that’s some way off from having an impact in the market today. And you know, my favourite subject is, you know; how do investors make money today? It’s all well and good being aware of this sort of generic movement towards being, you know, part of the technical solution for nuclear, which is great because it suggest that it is part of the plans.  I don’t know, like you say, talk is cheap, but you know, money talks louder, right? So I’m kind of interested to see how it does pan out over the next, you know, two, three months in terms of pinning some numbers down on a piece of paper that says here are the areas that need fixing, because the nuclear industry as a whole in the United States has got real problems: it’s got tens of billions of dollars of problems, which either the Government says; we’re pro it or we’re just going to put sticking plasters over this. Because, you know, I think the Democrats would say that perhaps they are not as pro as the Republicans are. You then get into this political situation in the United States; that’s certainly our reading from outside. So again, that uncertainty continues. What are the discussions that are happening in-country?  In the States, North America?

Justin Huhn: As far as what specifically?

Matthew Gordon: Well, of course the political situation.

Justin Huhn: The political situation?

Matthew Gordon:  Well, the political attitude to nuclear being something which, both sides can agree on; you know, it becomes a cross party, strategically important as opposed to Democrats using it against the Republicans and Republicans using against the Democrats. I mean, we just see this infighting as opposed to, just get on and tell us what the infrastructure for our energy needs are going to be for the next 40-years, please?

Justin Huhn: Right. It’s kind of tough to say, I think you’re right that in general, the Republicans are more in support than the Democrats, although there are some Democrats that are fully in support, especially given the higher propensity for Democrats to be concerned with climate change and carbon emissions and such. And that certainly seems to be a positive sentiment growth situation with nuclear as part of a solution in the States and everywhere. I think it being an election year makes it a little bit tricky still because I think that there’s, you know, we have all of these positive things potentially coming from the working group and this thing that we’ve been waiting for two years now. And if Trump is not re-elected, depending on who wins, that could have an effect on all of these policies. So it’s really hard to kind of hang your hat on exactly what we’re going to get from all of this. So, obviously, Bernie Sanders is anti-nuclear, Bloomberg is pro-nuclear. I don’t know, it seems like those two people at this point might have the better chance. But then again, if I had to bet, I’d bet that Trump probably wins, although I’m not really into betting on these sort of things, but I do think he still has the upper hand as the incumbent and as long as the economy can hang on, he probably has a good chance.

Matthew Gordon: But this isn’t just political speak, you know; you’ve got to piece lots of groups. So let’s start a process talking around nuclear solution, budgets, et cetera. But then, as soon as the election is over, well, things get put on hold again. Let’s leave it to market forces is, I mean, we’ve seen that on numerous occasions in numerous countries all around the world. Is there a danger of that?

Justin Huhn: I suppose? I mean there’s always a political danger, which is honestly why I don’t put a whole lot of weight in the working group 232 situation, and I kind of never have. I like to have exposure to some US companies that I like, regardless of the situation; overall, long-term macro. And just in case, not only as a speculation on 232 and the working group, but because I like those companies. And the fact that they’re in the US gives me some exposure to that.

So, and regardless of what does come out of it, I think, or just positive sentiment -okay – it’s a growth industry: working group comes out with all these great recommendations. The Government’s going to buy all this Uranium. SMRs – awesome, growing sentiment, life extensions, the demand supply situation is clear, if you look at a long-term chart, it’s stunningly clear, but the equities aren’t going to move until the price moves. It’s like everybody needs to see confirmation of all of this great sentiment and all of this great fundamentals.

Matthew Gordon: What does that mean? What does it mean, Justin? What does that mean?

Justin Huhn: Price; we need the price to go up; that’s what it means.

Matthew Gordon: I know that’s what we want, and of course we expect, but you say that’s going to be moved by sentiment based on all of these things. I mean, what are all of these things? You know, it’s kind of Catch 22 here, and it’s been a Catch 22 for far too long. Someone’s got to blink first and go, and I haven’t found anyone who seems to know too much about what’s going on. People have been calling it wrong for two, three years here. So what do you think is that moment this year? What’s happening?

Justin Huhn: Potentially, yes; it very well could be. The industry moves so incredibly slow. I mean, it’s glacial. And so I think what that adds to investor frustration is seeing all of the positive things almost on a daily or weekly basis. All of these great stories: whether it’s further supply destruction, further demand growth, but the actual, the time that it takes for these things, for the fundamentals to play out and actually affect the price and get it to move, is very, very slow. It’s very slow. It’s very difficult to predict in the short term.

Matthew Gordon: What are you hearing? People write to you, they speak to you, you’ve got your newsletter going on, and we’re talking about sentiment here, again, in a nice warm, fluffy thing called sentiment. What are they saying to you? What are their hopes? What are their expectations?

Justin Huhn: Well, I think the hopes and expectations are clear that it seems that we’ve got a serious incredible risk-reward opportunity in the country. And that’s the hopes and the expectations; that this plays out over the course of the next, I know you don’t want to hear this, for the next six months or so, you’ve heard it a thousand times. Those are the expectations and the hopes. What am I hearing? I’m hearing that, first of all, I’m seeing that other aspects of the fuel cycle are rising. That’s number one positive and they’re not coming down. So that’s really, really positive. And we can talk more about that if you’d like. What I’m hearing is that there is the most long-term contract discussions happening right now since Fukushima. That’s what I’m hearing. I’m hearing that producers, so you basically have Kazatomprom, Cameco and Orano, and to some extent Uranium One, that actually have any sort of meaningful production available for term contracting.

And I’m hearing that these producers are rejecting offers in the forties for long-term. And when I say long-term, beyond let’s say five-years contracts, they’re turning them down. And Cameco announced they signed 30Mlbs something, they said at a price that we like, you know, they can’t say the numbers because they probably signed an NDA, but we can assume that’s probably in the forties if it’s less than five years and it could even be higher.

So we’re hearing that term contract discussions are increasing to the point where it’s clear that the demand is coming back to the table. That’s what we’re hearing from multiple trustworthy resources. We have yet to see the spot price react to that;  spot market is dead. Like, I have never seen it this dead for this long.

It’s quite frustrating because that’s what the market watches. But at the same time, it’s reassuring because there’s just no buyers there. There’s a small amount of trading activity. There’s almost no end-user buying, but the price is holding. Okay. So that means that there isn’t some indiscriminate seller in the spot market. There just isn’t, whether that’s the Japanese selling inventory, because Kazatomprom is not there. I know BHP just throws their Uranium into the spot market at any price, but the price is holding, so we’re not seeing dumping, and it’s pretty well understood that the spot market is relatively thin.

Matthew Gordon: What’s that ratio? Remind me again, what’s the ratio between contract and spot, traditionally?

Justin Huhn: Like as a percentage?

Matthew Gordon: Yes. So has it been 80% contract/ 20% spot or is it 50/50?

Justin Huhn: Oh, it’s 60/40. Like a term contract is typically 60/40, as far as fixed price to spot reference price. And I always get it confused. I think it’s 60 fixed, 40% spot.

Matthew Gordon: Okay. Interesting. And do you think, I don’t know if you’ve spoken to any utility guys and gals that we have previously, but do you think the buying behaviour is going to change, going forward as a result of what they’ve seen here? Or do you think they’ll just fall back into the usual routine?

Justin Huhn: I think it’s going to change. I don’t know if you happened to hear it; Marcello Lopez from L2 Capital, he released a podcast yesterday. The interview with, I’m forgetting the gentleman’s name from a CGN and the Chinese utility, and he’s basically saying that, it was really interesting to hear him talk about it because he was saying how utilities generally speaking, and not just US, but worldwide, they have their stockpiles that are sort of intended to be this cushion to be drawn down when prices are high, and right now they’re drawing them down when prices are low. And the way to hear him speak about it from his perspective is quite interesting because he was like, these stockpiles exist for high price environments and they’re drawing them down in a low price environment. It’s quite illogical. You know, that was like the words that he used, and it’s like, yes, it is illogical, and it really, really shows the short term thinking that’s going on.

You know, the US utilities, they’re now at an almost a 10-year low in inventories. We assume that it’s somewhere around 90Mlbs. And so the evidence is there; the spot market has been dead so they haven’t been accumulating there. And conversion and SWU are rising. So it’s clear that they’re taking their U308 stockpiles and running them through the fuel cycle.

I don’t know if they’re doing this because the prices have risen so much in conversion that they’re trying to cut costs on the U308 side, or if they’re trying to just make the books look good for one more year. I don’t really know the exact reasoning that they’re doing this, but it’s clear that they’re doing it. So now we have inventories at lows, we’ve got life extensions being announced and the term, a lot of these term contracts really fall off a cliff in a couple of years and we’ve got the fuel cycle. So that’s clearly going change, especially with Kazatomprom, not the spot market. So now we don’t have this abundance of cheap Uranium just available at any time to anyone. The game really has changed in the past five to 10-years. It really has. How exactly it’s going to play out going forward; I don’t know. But we know that utilities are starting to come back to the table to contract and that’s really what we’re betting on.

Matthew Gordon: I want to talk to you about, just very quickly, companies. Okay. You’re invested in a few Uranium companies. Okay. We spoke recently to David Cates, Denison mines. It’s been around for a while. Obviously they’ve got a couple of projects today. I was intrigued by their business model actually, because I’m looking at some of the players, certainly Athabasca players; the main names sitting on big assets. And they have got these billion dollar plus infrastructure setups. You know, they’re going to need to raise a lot of capital, a lot of capex, which obviously restricts the sources and places they can go to for these.

And I was looking at this Denison model and it’s kind of interesting; they kind of, like a few Gold companies we’ve spoken to, a few Silver companies, Copper companies, who said, actually we could go huge, this NPV could be big, but I think strategically, it makes sense for us to reduce the size of production, but get into production early to allow us to have the conversations with the utilities about contracts, which we were just discussing, to say, ‘Hey, we’re a producer. And, Oh by the way, we got a bunch of stuff coming up behind which can give us the scale that you know, you and we need here’. And I just thought it was interesting and what’s your take on those guys? I don’t have a view. I just thought it was interesting to talk about a model like that. When I’m talking to one of the mid-tier guys. Juniors are obviously a whole different ball game of exploration and you know, where do you fit in a cycle, but what’s your take on that model?

Justin Huhn: It’s interesting. I’m pretty familiar with their projects. I’m not as intimately familiar with their financial situation per se. I believe that their ISR thing that they’re working on.

Matthew Gordon: Phoenix.

Justin Huhn: Yes. There’s a lot of doubt that it can work. They seem to be pretty confident that they can. It still has a decent capex, I believe; north of USD$300M, which is very high for ISR, but they’ve got high grades and a big deposit. So still they pull it off, the cash costs are relatively low. Even the all in costs are relatively low, even considering that capex. They do have cashflow from the mill – that makes them unique, that they’re a Uranium company with cashflow. They’re one of four or five or six, you know, not very many. I think that’s a bold move to move towards production before you actually have contracts, let alone a market with prices that –

Matthew Gordon: Alright, let’s be clear; it’s a move towards talking about getting into production.

Justin Huhn: I mean obviously, considering they have cash flow and they’re well established in the basin, I think that if they can prove that this process can happen, you know, maybe they get a JV partner to help that capex just to get some more pounds coming through. And I believe they’ve been doing some decent insider buying. The share price has been absolutely destroyed, primarily from U308 selling and that just being snowballed to them and a half dozen others. That is, I believe it’s mostly there; they’ve been clearing out the books to make room for Kazatomprom Holding and it’s just absolutely crushed a lot of stocks. That’s, I mean that’s, I mean not to get too deeply into that, but over the past month and a half, two months, it’s been brutal.  I think the amount of shares they’ve been selling relative to the daily volume is not necessarily overwhelming, but it’s had a momentum effect with the spot price just staying flat and buyers. There’s only so many contrarians in the world, so the buyers are few and far between, and just a little bit of selling and it triggers the algos and the triggers any stop losses and it’s just like, yes, rough. But we know that’s happening and why it’s happening kind of changes the framework.

Matthew Gordon: I think so. I think so. Look in, you know, that happens in other commodities, it’s not unique to Uranium. We’ve seen it with Gold, Gold companies, Copper companies, in the last year, which is, funds just changed; they volte face. They go the opposite direction because stuff happens. You know, look at Black Rock’s recent announcement; there’s a few Royalty companies that have been hit hard because they don’t kind of fit the profile anymore. You know, money has been withdrawn. So these are the things that these guys, highly paid individuals have to deal with, and rather them than me to be honest. But it’s all part of the mix. Right?

Justin Huhn: Yes. I don’t know if I answered your question.

Matthew Gordon: Oh, you totally didn’t. You totally didn’t. Yes. You should be a CEO, it’s good.

Justin Huhn. I mean, honestly, if I were, let me say this, if I were in Denison’s shoes, I would probably wait until I have a bit more confirmation in the market before I do any significant capital raising and make steps towards increasing production or getting into production at all.

Matthew Gordon: Yes, they’ve got like, you know, USD$2M to USD$4M coming in from their environmental services, the mill component. Obviously you’ve got UPC, they deal with the management of that. So, you know, it’s a chunk of change, right? But their view I think, seems to be we got to develop this thing, we got to do some exploration, we have got to raise the number of ounces and then you know, that the resources they’ve got.

Justin Huhn: They have got to stay out of it too; all these companies have to keep some kind of news flow happening.

Matthew Gordon: There you go; What’s kind of like coming back to the Energy Fuels thing; maybe they see something that others don’t. But yes, when pushed, we said, are you going to raise money soon? And I was like, I don’t know. I can’t tell you. You know, they close up shop here. But it was certainly interesting to talk about the model. And that’s the bit that kind of gives you clues as to how they are going to manage things going forward. And I guess having one of the Lundin family on your shoulder kind of focuses the mind somewhat as well.

Justin, thanks very much. I mean, great, great catch up. And thanks so much for telling us what you know about what’s going on in the market place, certainly around that sort of DOE announcement. Next two weeks could be interesting. We should catch up in a couple of weeks, but I think there’s probably going to be something interesting to talk about, well I hope there is.

Justin Huhn: I think so as well. Yes. Look forward to it.

Matthew Gordon: Are you going to be putting any money on that or are you going to be buying shares, or are you going to wait?

Justin Huhn: I feel comfortable in my positioning at the moment. I’ve been buying over the past couple of months to the extent that I’ve been able, so I’m uncomfortably positioned, and I will buy more if I can and if we continue to consolidate, but I think we’ll see something positive and some movement this year.

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