Uranium Space is CRYING OUT for this… #11. Brandon Munro (Transcript)

Bannerman Resources Ltd.
  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price: A$0.03 (22.06.2020)
  • Market Cap: A$33M

A Conversation with Brandon Munro, CEO of Bannerman Resources (ASX: BMN).

We have interviewed Munro throughout this uranium bear cycle; his insights have been incredibly useful for investors. Here is his previous interview.

For access to the UN-CUT interview go here.


Brandon Munro is back and he’s ready to share the latest and best insights into the uranium space with our Crux Investor viewers.

First, we take a look at the impact COVID-19 has had on Kazakh uranium production. We all know the pounds are down and won’t be made up, but is the virus going to extend the 3 months shutdown?

Namibia is a country that has classified mining as an essential service, so the uranium sector there can continue at close to fully-optimised production.

We then talk about how well Australia has dealt with the COVID-19 crisis and the positive impact this had had on BHP’s Olympic Dam: it’s still open as usual.

After taking a look at Paladin Energy’s fall from grace off the ASX300 and what this could spell out for all Australian uranium juniors, we talk about the need for consolidation in the uranium space. With projects, capital and expertise spread thinly, uranium companies need to band together if they hope to prosper or even survive come the turn of the uranium market. What did you make of Brandon Munro this week? Comment below and we will respond.

We Discuss:

  1. COVID-19’s Impact on Countries: Looking at Kazakhstan
  2. Production in Namibia: How Did COVID-19 Affect it?
  3. Cameco and Kazatomprom: Independence of Market and Production Clues
  4. COVID-19’s Affect on Australia’s Olympic Dam
  5. Paladin Energy Removed from ASX300: Implications and Opinions
  6. Business Models Galore: Survival of Uranium Companies Lies in M&A

CLICK HERE to watch the full interview.

Matthew Gordon: Hey, Brandon, how are you doing, sir?

Brandon Munro: Well thanks, Matt. How are you?

Matthew Gordon: Ready for our weekly catch up? It seems like a quiet week though, compared to what has been going on.

Brandon Munro: It has been a quiet week. Quite a bit was happening in equities this week, but in as far as the market goes, I think it was just one of those weeks where it just did its thing; not a whole lot of market defining announcements, no big catalysts, nothing that had Twitter running hot, or my email clogging up, or my phone running off the hook – just a week in Uranium.

Matthew Gordon: Well, I think the interesting thing that happened yesterday was the fact that the market had a little bit of a shock. The US Fed made noises about a potential second wave of COVID-19. It was coronavirus which got people nervous. I think it got people, perhaps younger investors, nervous. I mean, I have not sort of seen this thing before, and we, you know, we had all sorts of numbers thrown out as a result from market experts. So maybe, and again, you know, we perhaps should stay away from all things medical as to whether we believe that to be true or not in the US, so maybe we should talk about COVID-19; how it is affecting countries around the world. So why don’t we start with Kazakhstan, because that’s something we have talked about over the last couple of weeks. Any new news there?

Brandon Munro: Yes. So, the public information obviously is that Kazakhstan’s cases have reduced, but they’re still significant. So, they’re at about 250, a bit below 250 new cases a day. And if we put that in a little bit of context, when KazAtomProm announced that they would be suspending wellhead development at least for an estimated 3 months, their cases were averaging 50 per day, so still five times up from when they decided it was appropriate to take that action. And it is worth thinking about Kazakhstan, because I think a lot of the market is looking at that 3-month estimate, wondering if they would potentially come on early, which they would have to do in the next couple of weeks, or if it can go longer. And we have talked at least a couple of times about why that production disruption extending would have such a compounding effect on both sentiment as well as the pounds available in this market.

So, we have got still quite a few cases coming through. They’re not out of the woods yet. Karaganda province, which borders the most important production centre of Uranium in Kazakhstan, there was a New York Times article that talked about a number of towns being shut down, or shut in. Various restrictions because of outbreaks there. Someone who works in the mining sector in Kazakhstan that I deal with, not in Uranium, but in another commodity, they told me a story during the week about how there was a case in their office building and so they have all had to go home for another two weeks, and how disruptive that is. So, there is that sort of disruption going on. And so, we have had the guidance that the three months is likely to take its full course. And what would be really interesting is, at the end of this month, to have a look and see what guidance KazAtomProm gives going forward. And when you talk about the sort of numbers that we have, I think it is very open to them to play it safe, be a bit cautious and stay offline.

Matthew Gordon: And let’s just remind people what the implications of that are, which we talked about this last week: Mr Pirmatov talked about the possibility, or at least they would consider coming and buying in the open market, not something that they had envisaged a couple of months ago, certainly not discussed a couple of months ago. So, the implications in terms of availability in the open market are potentially quite big.

Brandon Munro: Particularly if they don’t have a firm idea of when they’re going to come on again and how long it could go. Because if these decisions are truly being made on medical grounds, nobody knows, nobody knows. And you know, the scare that you referred to about second waves in the US, well, Kazakhstan starts hitting winter as early as October on the steppes there. And they could well be looking at well, what would the implications of a second wave be? Would they do a couple of months of wellhead development with the risk that they’d have to shut in again and delay and see winter out? So, there are a lot of uncertainties there. And just because of the sheer volume of their production in the market, and the fact that the 4th month of a production disruption will have a much bigger impact than the first 3-months because of the ISR mining. This could really have quite a big effect once they start coming into the spot market.

Matthew Gordon: Okay. So, the implication for Uranium investors, or people thinking of investing in Uranium, is that the macro story just builds and builds. It is accelerating. If KazAtomProm has to come into the market, there’s going to be less supply around. So therefore, when this thing pops, it should pop quite quickly.

Brandon Munro: Correct. And what has slowed the Uranium recovery down for the last 3-years, in other words, we had fundamentals that 2.5 to 3-years ago were very attractive, but the market hasn’t reacted to it. And it has been the presence of inventory, primarily, that has done that. It has enabled utilities to defer buying decisions and various other mechanisms within the market that has disconnected the price from some very, very strong fundamentals. Once that inventory goes, and particularly if it starts going backwards because you’ve got large spread producer buying of Uranium in the spot market, plus a nice little sentiment lift coming from either financial investors or utility to realise that they need to restock, then you’ve got the ideal conditions for the fundamentals to match up to price and price has got a long way to go before it matches fundamentals.

Matthew Gordon: It certainly does. I mean, again, it is something we have discussed on many of our previous weekly catchups. Okay, well, let’s kind of move it on because I think that what we’re trying to understand is, you know, what’s happening in the world of Uranium in terms of production? So let’s go for your home from home: Namibia. What is the news from there?

Brandon Munro: Well, Namibia has locked down the Erongo province, or Erongo region. Again, the Erongo is the region in Namibia that has hosted all of the Uranium mining. Bannerman’s Etango project, Deep Yellow, Langer Heinrich, and Paladin’s Langer Heinrich project. And of course, the giant Rossing and Husab projects that are owned by two of the Chinese utilities. So, they’re in lockdown, they’re in lockdown for 14-days at this stage. But importantly, during the first lockdowns, Namibia ironed out all of the details around mining and what’s allowed. And as a result of that, mining has been classified as an essential service. So, mining carries on. If we go right back to our first discussions about COVID-19, you can still operate a full workforce and you can still operate a mine, but you can’t do it perfectly easily when the rest of the society around you is shut down. So, it will just make it hard for them to hit targets and do so for the next couple of weeks, but essentially full production.

Matthew Gordon: Okay. And so, when do we start understanding or hearing about the numbers? Will it be a 5%, will it be a 10% reduction in their operating output?

Brandon Munro: We will get that through the Bank of Namibia figures. That will only come through at the end of the year.

Matthew Gordon: Okay.

Brandon Munro: We’re talking about utility-owned mines here that have got no direct disclosure obligations in that way. They obviously need to keep the IAA informed and the Namibian government informed. But there’s not an awful lot of transparency there. And for that matter, not all of that Uranium is hitting the market in any case, a lot of it goes directly back to those utility owners for absorption into their own supply chain.

Matthew Gordon: Okay. The net effect being the same. So, do you think, given the conversations we have had in the past couple of weeks, and I think some other market commentators have commented too with regards to the position that Cameco finds itself in. It is closed down, for the right reasons, but it is going to open up for the right, different reasons. And KazAtomProm saying that they may potentially need to come into the market to buy. Are there any clues that whether the Husabs of this world would also, you know, keep production at a level which may help global prices?

Brandon Munro: I don’t think the two things are related: Husab and Rossing are operating according to things that are essentially independent of market. You know, Rossing is operating to deliver into contracts that will have some market mechanisms. So, you know, they have got a bit of an interest in seeing the price increase, but essentially, whatever they don’t deliver into a contract goes back to CNNC. And with Husab, that’s largely the case. So, I don’t, I think they will be operating according to a vacuum as far as the market goes. And the things that are worrying them are far more operationally based on the ground.

Matthew Gordon: Okay. So, let’s move on to another group who perhaps care even less about the price of Uranium, which is Olympic Dam, BHPs production, because it is a by-product there. It is just part of what they’re doing during the normal course of business while mining Copper. So, what’s happening in Australia, are they being affected? Are you seeing any signals or signs there?

Brandon Munro:  No, they’re not being affected at all in fact. South Australia, the state in which Olympic Dam and Ranger are based. ERs Ranger mine, it has had, I think, two new cases in the last 6-weeks. They have got no active cases in the whole state. And in fact, just this afternoon, the South Australian government announced that it would be opening its interstate borders. So, its borders with Western Australia, Northern territory and Victoria and new South Wales on 20th of July. So as far as they’re concerned, they don’t have a problem in South Australia. And so, the chance of it affecting either of those minds, particularly once they have now made all of the relevant adjustments; blue team, red team, et cetera, et cetera, bus in bus out, all of the different things that they have done. I just don’t see any capacity for disruption in the short term. Of course, there’s a chance of a 2nd wave in Australia. That’s what has people concerned – what happens when we have to open up international borders in a more substantive way? But for the foreseeable future, I just don’t see any substantial potential for disruption there because of COVID.

Matthew Gordon: Well, I think the Australian policy, I mean, you are world leading. I mean, the number of incremental deaths due to COVID-19 is extremely low. So yes, that’s a big moment if the borders open up, if international flights do start coming in, and I guess we shall see when you guys decide to open up the borders.

Can I talk about one other thing Aussie? Because, potentially, Uranium just lost its seat at the table in a way, in that Paladin has just been removed from the ASX300. What’s your reaction to that? I know we want to stay away from commenting about companies specifically, so I want to talk about this in the context of Uranium as a sort of leading commodity in the world.

Brandon Munro: Yes, it is significant. So the S&P runs a series of indexes on ASX. People would be familiar with the All Ordinaries, then there’s the ASX-100, ASX-200, and ASX-300. So, essentially, the ASX-300 are the 300 largest stocks on the Australian stock exchange that meet certain liquidity requirements. There needs to be a minimum pre-float, et cetera. But for all intents and purposes, it is the 300 largest stocks. And if you fall below an acceptable market capitalisation, or if the rest of the stock market goes up and you maintain your market capitalisation, but a bunch of other companies push in front of you, then you get delisted out of that. So, for anyone who doesn’t understand that. So yes, indeed. So, S&P announced they’re rebalancing today, which will take place next Friday, the third Friday of June is one of their quarterly rebalancing dates, and Paladin and unfortunately for them and their shareholders, has been pushed off. It is not a massive immediate effect for them, but that will limit some of some of the investment funds’ capacity to invest who are mandated according to ASX-300 requirements, et cetera, et cetera. So there probably will be some selling to come out of it. But what is relevant and what is important is that now there isn’t a pure play Uranium company in that ASX-300 that isn’t closing a mine. You have got ERA there, that’s got a large market cap, but it probably, because of its liquidity requirements and the fact that Rio now owns 89%, is not investible.

So, if you were to define ASX-300 as an institutional grade, for argument’s sake, there’s nothing of institutional grade left in Australia. That’s, on the one hand, you know, rather sad given where we were before this bear market started, but on the other hand, it is a very interesting opportunity and it will certainly entice consolidations. For example, if Paladin had consolidated or merged with another company in the last six months, they’d still be in the ASX-300. And there will be companies that will see the opportunity to, 1 plus 1 equals 2, but that 2 gets you into the ASX-300, and therefore 2 goes to 2.2 or 2.3, when you see both the capacity for index buying, but also the appetite that’s building amongst institutions that we know is there, where a number of these investors, they love the Uranium setup. They love the fact that it is so asymmetrical at the moment. That it is a very good hedge against broader macro risk because nuclear power doesn’t march to the macro tune at the moment. Plenty of very, very credible commentators, writers, analysts who are saying, look, it is Gold first of all, of course, but Uranium second, in terms of an excellent metals hedge against macro-economic concern; that’s just elevated in the last day in the States as we saw.

So, once you see a company re-emerge, which could be Paladin, or it could be some other group, into that institutional investment grade, I think they will get a big lift under the wings. And that’s going to drive a number of things into the sector and something definitely worth watching.

Matthew Gordon: Yes, I’m fascinated by some of the business models out there. You know, like I say, we don’t want to talk about companies specifically, so let’s just talk about the model. So, you’ve got groups here, and we have spoken to a few recently who are talking the language of M&A. Others who are talking about joint ventures, and others who are just, you know, obviously they believe they have got what it takes because their single asset is big enough to be a leading producer at some point, subject to financing and a lot of things going right for them. Do you think that, like I say; we’re dancing around an area here that I’ve got to be quite careful about, do you see mergers happening in this space? Because the macro story is building, but at the same time, it has taken a long time to get here. We have seen a few raises in the market to deal with different problems, and they have been varying degrees of expensive and varying degrees of, well, let’s just keep the lights on and keep going to the end of the year. Do you see some companies needing to merge, needing to come together? Not any because they’re running out of cash, but to be a much more interesting story, to be a bigger story in what is a sort of dwindling market.

Brandon Munro: Yes, I do. And in fact, I’d go even further than that and say, this sector is crying out for consolidation. And if you run through, first of all, there’s the point that you made just about efficiencies; so, there’s too many management teams and too many overheads for too few assets at the moment, basically. But you then need to look at expertise. That’s an even tighter commodity in Uranium than money is. You need people in Uranium who have dealt with radiological issues, who have built mines, who have run minds, who have dealt with regulators, who have dealt with the IAAE, who sold the stuff, who understand how the nuclear sector operates, who can make strategic decisions on all of this. Who can gain the credibility of the buyers, which are utilities, which are a totally different animal to someone who is prepared to take a Copper concentrate or something like that?

There’s just so much to understand in the Uranium and nuclear sector. And this is a sector that’s essentially been in a bear market for 30-years and has been in a very deep bear market since 2011. You don’t see that the flood of young talent that’s come through this sector, and the people who were leaders in it, a few are still fantastically still hanging around and still in the sector, like Dustin Garrow. And thank goodness that he is. But he is working because he loves to work. He’s not working because he is of a working age. And so many of his compatriots have made the decision just to retire. Some of them aren’t even with us anymore, sadly. So, there isn’t enough expertise for the number of projects. So that’s the second thing.

The third thing is that capital is becoming more difficult. And as we were just explaining, if you can bulk up, you’ve got access to deeper pools of capital who are more suited for a commodity like Uranium. Uranium is capital heavy. It is not like little CIP plants in Gold or, you know, buying the plant down the road that’s just stopped operating in Kalgoorlie to punch out 10,000oz p/a, or something like that. Uranium is capital-intensive by its very nature. So, you need to have access to more developed pools of capital. And then from an operations point of view and at a more global level, when a utility looks at the Uranium space right now, what they see is they see a couple of dozen Uranium companies who are all assuring them that we will be ready in production in three, four, five years. And it is not a utility’s job to go and do the detailed analysis on the environmental implications and how realistic that is, or try and second guess what their technical processes are, or even understand that there’s daylight between a Scoping Study and a PFS and a DFS and what that risk profile really means.

So, the utility sees this array of projects that seem to all be very likely to come on stream. And so, what’s the big deal? Where’s this supply crunch? They just think that we’re lying to them or exaggerating, or we have got confirmation bias because we love our own project or something like that. What this sector needs is the better projects to consolidate into a handful of lumps. And those leaders then go to the utilities and say, look, we’re here to build a long-term Uranium business. That’s what we’re passionate and invested in here, but you need to understand, Mr. Utility, that we will only bring these projects on sequentially, as you demonstrate, as the market, that we need those pounds. So, all of a sudden, this array of projects that are all declared to be fantastic, separate into a few stragglers, which will be found out by then, and a few clients of credible projects in the form of Uranium companies that are serious about building. And that’s a natural progression in this sector and it will happen.

The problems that we have got, I guess there’s a fair bit of management who are clinging onto their jobs at the moment. There are shareholders that are a bit reluctant to enter into even a scrip for scrip consolidation at the bottom of the market. You know, as much as company A might merge with company B on identical ratio to what they do at the top of the market, they’re still a sentiment-driven thing because merging at USD$0.20, not USD$0.50 that happens at the top of the market. So, shareholders are more likely to support a merger in an elevated situation. And when we were just getting a little bit close, because the Uranium price was really going down and desperate, and we were seeing a few, certainly I saw a few CEOs who maybe saw this is their opportunity to exit and go into Gold or Copper or something more fun. Then it picked up again, and so they’re in there for a little bit longer. So, there’s a bit of a long answer for you, Matt. But I do think that this sector requires consolidation from both a push and a pull factor perspective, from both a top down and a bottom up perspective.

Matthew Gordon: Great answer. I love that answer. We spoke with Dustin, actually yesterday, and it was fascinating. He echoes a lot of what you’ve just said, because like I said, you know, he has been around the block. He’s worked from all angles in the industry. So, he does have a view. And the interesting thing he said was that, one, with regards to management, that the people just aren’t around who had been there and done it before. And he said, you cannot underestimate that factor because he said, I saw it in the last cycle, there were lots of names, lots of conversations, lots of pitching, lots of promises made, and very few companies actually got over the line. And he’s talking about companies in the Athabasca Basin. He’s talking in Australia, he knows Namibia. He saw what worked, he saw what didn’t work, and more didn’t work than worked, This is not necessarily a direct correlation to share price, because there was sentiment in the last cycle which was very positive with anyone who mentioned the word Uranium. If they walked into our bank and said the word Uranium, we were interested. But the reality was very, very different. And he said, it is going to be no different this time around.

In fact, here’s an interesting thing: and I’m looking at them here, he gave me, he’s got a couple of handfuls of companies that he thinks will make it, based on his knowledge of what’s happened in the last couple of couple of cycles. And it is kind of fascinating, you know, his view, having been there and done that. So, I enjoy that conversation with him and saying, you know, what people say and what they’re capable of doing are two very, very different things. And he kind of, again, off camera, gave me examples of, you know, companies who he thought talked a good game, but had no chance of actually getting over the line. So, a lot of what you just said makes a lot of sense to me. And again, Dustin’s explanation of how the utilities were, how the buyers think, what they’re looking for, what they actually believe. Some of these utilities’ companies are and are not capable of delivering. It is it is obvious to them. It is perhaps a little bit less obvious to us Uranium investors, but it is essentially getting an insider view on that one. As usual there are always many, many unknowns.

But as a Uranium investor, I think the mood seems to be positive. We are seeing companies who are coming into the Uranium space who are applying for permits and licenses. We’re buying into companies with permits and licenses, which haven’t really done anything in there, and I think that’s always kind of indicative of the mood. They feel that they’re going to be able to get financed. I know they’re sort of jumping on the bandwagon, but nevertheless, it is one of the early indicators that this is a market which perhaps is moving in the right way again. We’re having brokers approach us, you know, talking about, are we aware of any companies or projects, which would like money for this space? And we’re not talking big money. These are the obviously very, very early stage, barely even exploration, just I think asset hunters.

And so, Brandon, look, I think we started this talk thinking that not much happened this week. Nothing really to discuss. We have done it again. We have perhaps gone off in an impassioned speech about several topics there. But look, I appreciate your time. Have a great weekend. Are you up to anything fun this weekend? What’s happening?

Brandon Munro: Ah, just chilling this weekend. I’ve been really busy this week and I was pretty busy last week as well. So, I’ve got a few things to catch up on, on the home front. No bees, unfortunately. So, nothing quite that exciting, but hopefully I’ll keep myself busy with my daughters; that will be enough for me.

Matthew Gordon: Beautiful. Beautiful. Yes, me too. I must check up on those little bees. It is been wet. Very, very wet here. It is terrible. In fact, you know what I’m doing? I’m going up on the roof. We have got a leak. The lead work on the roof somewhere is not working. So, I’m obviously a man of many skills – that is so not true. I’m at least going to try and spot where the leak is and then maybe call a man who can. But these days it is very hard to get anyone to come out because they don’t want to be in contact with us. So yes, that’s my task for the week. Okay, well, Brandon, thanks so much again. Let’s talk next week. Hopefully some exciting developments. You never know.

Brandon Munro: You never know. But we always manage to find something to yabber on about, and from my understanding, your audience doesn’t mind it either. It was great to chat, thanks for having me on again.

Matthew Gordon: And it is time to say goodbye to our regular viewers from CruxInvestor.com, as we join Crux Club. We are going to be talking now to Brandon and get his views on China’s influence on the Uranium market and Uranium investment by association. We look at how China affects companies and countries in terms of how they interact with China, what China’s drivers’ goals and ambitions are and how they think they’re going to get. It should be an interesting conversation. We are also looking at the NEI blog recently, which talked about the number of reactors in the US applying for an operating extension; what the impacts could be for US utilities, and of course, for our investments? But before we go, if any of you are interested in understanding what Brandon has to say on Uranium, and indeed what other market commentaries have to say about a variety of commodities and investments, go to Crux-Club.com. You can find that at crux-club.com, where you can sign up for the waiting list, but in the meantime, goodbye.

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

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