Daniel Major, CEO of GoviEx Uranium (TSXv: GXU) joins CRUX Investor for a discussion on all things Uranium. In the aftermath of Trump's Section 232 Petition announcement, the Uranium market continues to be in a period of uncertainty and Utilities still cannot plan for Uranium contracts. Uranium stocks dwindle to previously unseen levels. Cameco has broken ranks with their press release last week to say that they would start to buy Uranium in the market later this year but this has not set off any additional buying. He shares his thoughts on the 90 Working Group put together by Donald Trump but is it just kicking the can down the road? Will the US Uranium companies actually benefit from this review? It is all unknown at this moment as the remit of the 90 Working Group is unclear.
Have the experts been calling this wrong for the last 3 years or have they just got in early? Could have investors been investing in other things for the last 3 years and walk back into the Uranium market today? Potentially.
The macroeconomics of the Uranium investment story gets stronger by the day. But for most public stocks and most exchanges, about 70% of companies will be over valued. Investors will invest in companies that are doomed to fail. We discuss the fact that the basic rules of mining still apply to Uranium companies, just as they do for other commodities. Investors need to understand the fundamentals, low AISC, grades, the managements track record, jurisdiction, cost and availability of funding, the mineable ore and time to production.
Click here to watch the interview.
Matthew Gordon: Always enjoy our catch ups, but obviously, quite opportune as it’s post-232 announcement and right smack in the middle of the 90 Day Working Group. So why don’t we kick off with that?
Section 232, are you going to tell me you expected that result, are you?
Daniel Major: I wouldn’t say I’m that smart, but I’ve always tried to set out both sides of the camp here, and explain why I thought it would not succeed, that there was a bigger issue here. I think ultimately that’s what’s played through.
The way it was announced – the Working Group, to me – there’s two ways of looking at this. Is this just purely a can kicking exercise? You know, couldn’t make a decision on 232. Let’s kick the can down the road, but we dealt with 232, per se the documentation but we just kick the can down the road for 90 days. I’ve got another 90 days to think about it and worry about it in the future.
That isn’t my concern to a degree, that that’s effectively… That goes both ways. That could be, I’m kicking the can down so the miners feel they’re loved, but at the end of the day I’m going to dump half of it anyway – or, I’m kicking the can down because I wasn’t ready to make that decision. I’m slightly surprised by the rounding argument that was put there because when 232 started, there was application by the miners but they very quickly turned it into a review of the nuclear sector. So what he’s asking for is effectively what they did at the beginning anyway. I think the Working Group, to me, is politics.
Matthew Gordon: So do you think the formation of the Working Group has removed any uncertainty in the market?
Daniel Major: No.
Matthew Gordon: No?
Daniel Major: Because you’ve still got 90 days to think about it.
Matthew Gordon: But if you look at the way it’s been positioned by some groups…
Daniel Major: Yes. Oh, they definitely have their views.
Matthew Gordon: Everyone’s right. My interest is in what the 232 set out to do because it was a conversation around national security. I think it’s been re-engineered to be a conversation around, “Well, we’ve started a negotiation or discussion around the nuclear industry, from which we (Uranium equities companies) will benefit in the US. So it’s a win-win.” Are you a buyer?
Daniel Major: No.
Matthew Gordon: It seems to me there’s multiple conversations that could spin out of this.
Matthew Gordon: I think it’s slightly a can-kicking exercise because when you looked at the depositions that originally went in, they came from everywhere. The nuclear industry, the mining industry, everybody had an opportunity because they expanded it away from just the production of Uranium, and they made it a bigger issue. So from that point of view I do think it’s, “I need 90 days to think about this.”
The way it was worded coming out, you could look at it and say, “Quotas are off the floor. That’s already been taken away. The defensive side has been removed because that’s what he said. That’s the one categorical element that came out, which is “We don’t see a security issue here. Let’s get this away.” Where that ends up at the end of this, I don’t think anyone has any context yet of what this Working Group’s going to throw up or why. What you might see is trying to make it easier for the miners to go into production – and I’m not talking about price. I’m thinking permitting rules, those kind of things. That might be where they go and say, “Things have got to be commercial still, but let’s make it easier for BPO filing, that kind of stuff.”
Matthew Gordon: Do you think it was clear what the remit of the Working Group was?
Daniel Major: I haven’t seen one other than the Working Group which will be formed to relook at the nuclear industry and the supply of material to it.
Matthew Gordon: So you think it could have been handled better?
Daniel Major: Not knowing the detail of what they’re trying to achieve, very difficult.
Matthew Gordon: Does anyone?
Daniel Major: I don’t think so. The US Uranium miners will welcome the Working Group. Not many other people are rushing to welcome the Working Group because no one else has an opinion on it.
Matthew Gordon: I disagree. I think everyone’s got an opinion on it. The problem is, is it speculative, is it hopeful, is it a matter of pride?
Daniel Major: I think it’s all speculative at the moment, to be honest, and that’s the way I’m looking at it. Until I see some clearer direction coming from wherever it’s going to come from to tell us what’s going on, I think the only thing that I’m reading into the decision-making process is this concept of direct quotas for security is probably off the table. That seems to be the only thing that… I could even be wrong there, but that seems to be the only thing I can see at the moment that has a degree of uncertainty – which is that’s gone.
Matthew Gordon: Trying to work out what a likely outcome could be is impossible because you don’t know what the remit is. We don’t know the extent of this and there was a dialogue going on before 232 which seemed to omit quite a few pertinent factors like where the utilities companies sat in all this. There was a lot of conversation around they need certainty, but no one talked about opposition to the 232 petition.
Daniel Major: They all had to put documentation in. So there were utilities putting in documentation to state their positioning on it, and they were one of the ones that were very ‘we don’t have an issue, guys. We buy from Canada more than we buy from the Soviet States. It’s not a big problem for us and there’s so many places we can buy Uranium from.’
People have always said, “it’s only four per cent of energy costs for nuclear or six per cent.’ But when you’re not making a lot of money, anything is a lot. You’re squeezing your margins now. You’ve already taken everything into account.
Utah now sign-off their clean energy bill. You cannot be providing financial support on the one side and then up the input costs on the other side. It just doesn’t make any sense, and I think ultimately that was figured out. There’s not a lot more we can say on this.
Matthew Gordon: It’s guesswork?
Daniel Major: Speculation all over the place. We just watch. All I hope is that it doesn’t drag out this problem, and particularly Cameco who said they were not going to be going to the market to buy their material until Section 232 was out of the way. Well, it’s out of the way, but I’m not sure we’re seeing a lot of Cameco buying yet. So maybe what this has done has also pushed them out further.
Matthew Gordon: We’ve spoken to one utility and a couple of other players in the market who have said that this thing could go on for as long as 18 months. The Uranium space has got some unusual characteristics to it and there’s a lot of moving parts. More so than any other commodity, so let’s hope we find out.
The fundamentals of mining still apply, and Uranium buyers, equities buyers, seem to forget that in conversations - it’s relatively convenient to talk about the macro picture, but there are going to be good companies and not so good companies, and that’s important to say. Why don’t we talk about that?
We call this investment hacking for our investor community. With your investor hat on, I want you to describe the sorts of things that you look for in a company if you’re going to invest in the Uranium space right now.
Daniel Major: On your question, there’s nothing different to Uranium mining as there is to copper mining or gold mining, or any form of mining. Mining is mining. The only difference is our operators have to wear dose meters and they don’t. And it’s a real pain to ass to do paperwork. So I’ve even done pulp and paper in my life. It’s the same as mining. You crush a tree down. You bleach it out and you produce a paper from it. What’s the difference to putting gold in a mill, putting cyanide on it and producing a gold bar? The process is the same. At the end of the day, it comes down to the same things that we always have – what is the quality of the asset? What is the jurisdiction? What is the management and the cost? Nothing is different when you look at companies. I think the only things that you’re looking at is timeframes here.
Nobody will dispute the Canadian projects that are currently sitting out there are probably the three best mining projects that are out there. You can’t dispute Denison who’s got 19 per cent grade in their deposit, that that is not a good deposit. I mean, flipping hell! But this comes down to timing and cash flow. It’s a great deposit, but as I said, you keep the Ferrari parked in the garage for ten years, it’s a bit boring. You want to get to the shops, you’ll take out the Ford Mondeo because you can use it to run around in.
Someone like ourselves we’ve got a great project, but it’s permitted and you can get going. And that comes back to jurisdiction and understanding jurisdiction. Canada is a safe place.
Matthew Gordon: It is a safe place and I think even with Athabasca there are projects which are better than others.
Daniel Major: Yes.
Matthew Gordon: In terms of they’re shallower or deeper, etc...
Daniel Major: High-grade or whatever they are.
Matthew Gordon: High-grade or they are earlier stage, the stock is at a price which may lift more. If you’re one of the big producers perhaps you don’t see those uplifts anymore. So as an investor you need to pick what your investment thresholds are and make that decision. I agree with you. I think the ASIC is really, really important. The management team’s ability to deliver is really important. Encourage Uranium investors to look at the mining fundamentals before they leap in. Not all companies are born equal.
So with regards to that, are you saying because you’re permitted, you’re the best out of the rest outside of the Athabasca?
Daniel Major: We have that one big advantage sitting there. If I was looking at myself compared to everybody else, what is the one thing that has standing out against the rest is I’ve got a permitted project. It’s ready to roll. All it needs is an improved price.
Matthew Gordon: But what are your grades? It’s not just about permitted, it’s permitted, low-grade, low margin…
Daniel Major: You look at your project. You go, “There’s my key factor that I’ve got. Why has this project got real potential?” And so therefore you go, “Well, I can do absolutely nothing and just hope for a really high Uranium price, but by the time I get a really high Uranium price, time has gone and everybody else… I’m losing my angle. My advantage is being eked away.”
It’s a bit like IP. IP lasts you for five years and then if you haven’t made your money it’s gone.
Matthew Gordon: Are you just saying that you’re so far down the track. You’ve got your DFS, you’re permitted. That gives you an advantage, but if that’s your only advantage….
Daniel Major: That’s where I was going to. So, what we have to do and what GoviEx is completely fixated on. I’m completely fixated on, which is… Well, you either wait for this price or you do your damnedest to drop your cost and optimise your project, so you actually only need this price. That is what you’ve got to do which is, “I have a first mover advantage, I need to make sure that this company is turbo-charged to take that advantage when it happens.”
Matthew Gordon: So what have you done?
Daniel Major: So, we had continue… First thing I did when I started the FS, people say, “What are you starting?” was actually to take that opportunity and not bring in a cast of thousands, but to put a small team together that basically said “Look guys, there’s your PFS -what can we do to this project that substantially changes its costing?” Firstly, let’s forget about 21 years of my life, because we know it’s there and it’s probably actually going to go for 50 years in the end. But this thing has got to pay for itself – it must pay its debt down within five years. How do you change this project to pay its debt down in five years?
So that’s why it was important to get Merriam in, the other part of Merriam that was missing – the six million pounds that are there in measured and indicated, because that meant the open pit was now longer than the debt period. So the debt guys could do that. So that basically simplifies the project that the only bit we look at is an open pit.
Matthew Gordon: So just simplify it for people – open pit means cheaper, right?
Daniel Major: It’s cheaper, it’s simpler. Banks understand it, it’s literally digging a hole in the ground.
Matthew Gordon: It’s less risk because it’s pretty much all at surface, because as soon as you go underground there’s uncertainty about where things are and the cost of actually getting at it.
Daniel Major: It’s a more complex mining methodology, ramping up… digging with a truck and a shovel, pretty basic.
Matthew Gordon: Right, so that’s the first great thing which has happened, where you with other things?
Daniel Major: So now we’re looking at contract mining, because I can cut out about $25 million of capital if I can get a contract miner in. What we’re doing is trying to find that balance between operating costs and capital costs, because you’ve got to get a better or same return out of your project. Because the contract miner’s going to want a higher operating cost, because he’s got to consider his profit margin and his amortisation of his mining equipment. So you’ve got to deal with that.
So we’re out talking to, and getting quotes from, almost a dozen contract miners around. That’s the big difference from when we did the PFS, because there was nobody who wanted to do contract mining in Niger. Now there’s lots of people more than comfortable to do it because Niger as a jurisdiction is becoming more and more appealing.
The other thing…and things like the plant was designed to be on top of the underground because that was the biggest mass, but we have to truck to it every time. We’ve got to go 25 kilometres to get to the plant from the open pit, so why not just move it next to the open pit and start there? There’s some longer-term benefits to that, and I won’t go into detail on that now, because we could talk for hours on that.
The other big thing was to look at the plant and just say “Look guys, 50% of our costs, from an operating cost, and two-thirds of our capital are in the process plant”. If we’re going to make savings on capital, it’s going to have to come out of the process plant, just by scale – that’s where it all sits - operating costs. Very hard to change the mining costs a lot because, you know, it’s pretty basic. Can you do anything really radical to the process costs to change it?
Our biggest issues were new technology we were applying anyway, and we wanted to make sure it worked, or change it to get rid of it, to de-risk. And we were using a fairly aggressive costing approach on Uranium recovery using solvent extraction. It’s still built into a $24 cash cost, but it was still an aggressive way of doing it. So, we basically sat down and broke that out and said: “what can we do to radically change that? What’s new, what haven’t we spotted before?” and that is what we’re doing. So we’re now looking at gravity.
And some of these things come because of a result of what you’ve done before – you learn. And you go “Well, we did this and this, and that changed, so now we have a better understanding of how material operates.”
Matthew Gordon: You did a “what if” exercise?
Daniel Major: Yeah, so as you go through, you go, “Well if that didn’t work, but we realised what the parameter was that was causing the reaction. However, if we now apply that somewhere else, we get a radical change.” So, we’re looking at a process where we’ll still do radiometric shorting because it’s good at clearing out. We’ve got a big test going on in South Africa in the next month to just check that.
Then we’ve looked at ablation which we were using before but, because ablation shrinks everything down to a small size, we did some dry ablation work. We got dry ablation to work, but unfortunately it wasn’t scalable – we had too many little bits of equipment. So, you need 14 rigs to make the thing work.
Matthew Gordon: Did things go wrong?
Daniel Major: But what we did realise is that gravity works. I mean like there’s a massive SG, specific gravity, difference between the background material and the Uranium and that works. So we tested that. It has a benefit because we’re getting massive scale…we’re getting really small mass pull, so we’re coming down to less than … These are initial tests and we’ve got to prove them up, but the initial tests were showing only 20% of our material would be going through with 99.7% of the Uranium. But the key was almost no Calcite. And Calcite eats up acid, and acid is 10% of our operating costs.
Matthew Gordon: Wow! I didn’t appreciate that
Daniel Major: So I can cut my acid costs down a lot, I’m going to save a lot on operating costs. The other important thing is it looks like it simplifies the back-end of our plants as well to a much lower cost back-end, and smaller. So, these are the things we’re kind of looking at to say “what can we do to radically change the project?” Think outside the box, test it for low cost and then gradually scale it through.
There’s another side to this, to my brain thinking, as well, which is – if I simplify the process, the piloting becomes easier as well. So I’m trying to avoid some of my piloting because, if I can revert completely to industry standard, I can do things on very small batches and therefore save the amount of money I need to complete the FS. So I’m trying to save not just on the project, but how much money do I need to complete the bankable?
Matthew Gordon: I saw the press release, last week. There were some very important people there.
Daniel Major: There were some important people there. We got the President of the country and some fairly big hitters from his Parliament into Arlot. The President hadn’t been there since 1970. So it pulled him back to his roots. We had a first stone-laying, which doesn’t mean we’re going to start construction today, and even the Mines Minister said it won’t start straight away, but it was just to really highlight that the Government is really getting on with things and we are.
What happened in that agreement we did with the Government was we, in exchange for not paying back seven million Euros that we originally owed them from the acquisition, and we disputed about $6.6M of surface right taxes. We said, “Look they’re not due because of various technical reasons.” We agreed to convert that into a share in the project with the Government for a 10% stake. The intention being that in the future we have the right to buy it back again so they get their cash back, because they didn’t want to actually want to put more equity into mining companies.
The other thing that was key to them…and the Government kept talking about one particular item – the President made one point repeatedly, which is he felt Niger had suffered from the injustices of the Uranium pricing in the past. The Government is looking for transparency and is looking for engagement. And as long as you’re doing those, it wants to work and it wants to actively develop.
Matthew Gordon: Quite often they do love a photo op and it fills the papers and it’s just for the voters, and nothing actually happens. So why was this significant that they came up and saw you?
Daniel Major: Why was this significant – because of the agreements we signed with them. That was the key thing, because it showed we are moving forward. They could have gone hard on us and said No, pay up your money – you owe us this money, pay it”, and they went “ No, this is much more pragmatic, we want this company to build. Cominak is supposed to be closing, we want a new project, we want to work with you and get you to develop a mine”. So it was very much….part of it was obviously politics, but part of it was actually stating “we are moving forward” and that is key.
Matthew Gordon: So you’re keeping busy, you’re doing things – optimising, getting the ministry and the President of the country involved. But things are where they are today. Things haven’t moved and we talked at the beginning of this interview about uncertainty still with the 90 day Working Group. I think there will be for some time. How are you fixed in that – how long can this go on for you at this current rate? When do you need to see something move?
Daniel Major: We’ve gone for a long time in this process and it’s bought us time. I mean, if we’d have had to do this back in 2013 when we did the PFS, that would have been the project we were building. It’s given me time, ultimately, to get a better project together which will last for a lot longer. This is the point I made in my speech – this is not just about producing a mine for now, this is one that can go for the next generation. It’s a 50 year mine plus, and it needs to have the foundations to do that. So, we can go for quite a lot longer but, getting back to the original comment, I don’t want to be waiting for this price, I want this price. And at under three million pound per annum, we don’t make a lot of difference to the market.
Matthew Gordon: We’re getting into a discussion about mineable ore. A lot of companies have put out big numbers, big numbers, but they’re not discussing mineable ore, i.e. what levels can they economically mine at today, next year, the year after? What do the numbers need to look like?
Daniel Major: If you look at today, there aren’t many people who can mine mineable ore today, but you’re looking at trying to pull together a project that one, would only be in production kind of two or three years from now, to start with. Who knows what the final market will look like in two to three years? This isn’t a restart, this is a new build. And we’ve discussed this before – what I’m looking for is that momentum.
The other thing I’m looking for is to be able to take a much more interesting project…we have a great project, but I want it to be super great because I can then go and start talking to the off takers way more aggressively, because they want certainty of supply. And if I present now they’re going “Well hey mate, you’re going to need a much higher price so let’s wait”. When we go in and say “Well, actually I can get away here. This is the contract I want, here’s my nice project – you can provide that greater fiscal security” and the banks. So nothing really changes, but like everybody else, we need momentum. I mean you can’t move….
Matthew Gordon: You need momentum. The conversation is getting into how miners manage the numbers. You’re talking about open pit for the first few years of this, get past the debt position and then, guess what, the costs will go up and I think other people take that attitude – let’s get the good stuff out of the ground, pay off the debt, get some cash flowing, you know, and that’s the way that they approach this.
We’ve been looking at some studies with regards to mineable ore numbers at different levels, and obviously it starts small and builds up as you go up that curve, but at some point there’s an optimal number for the market….you want to sell for as much margin as possible, but there’s an optimal level for the market. Where do you think that is?
Daniel Major: We talked about this before, when you asked me about… I think it was in the very first interview we did and it was…. my benchmark for this project was to get below $45 Uranium as an incentive price That was the price. And my rationale to that was Cameco, when they first closed everything down, said $50 was their number to restart McArthur River. McArthur River coming back on is 18Mlbs, you know, it’s no small amount arriving and the Kazakhs, we know, can take their material up.
So, I think in the short to medium term my rationale has been – Cameco will restart when they’re comfortable that the market is right. The one thing we haven’t seen is that buying, Cameco just upped the amount they need to buy by the end of the year by 7%. That’s got to have an effect, no matter what happens this year, Cameco have got to meet those contracts so I think while we’re concerned about the 90Mlbs today, Cameco has got to be saying “well at some point we’ve got to pull the trigger, we have got to be mining material”.
Matthew Gordon: So they’re the guys who are going to blink first in this process…
Daniel Major: They’ll have to.
Matthew Gordon: …and set off a series of events. I guess everyone’s hoping that.
Daniel Major: Well, yes and I think they will. What they didn’t like to be was the only guys in the market, but I think the reality is US utilities now can be a bit more comfortable because, yes there’s a Working Group, but there’s nothing defined – there’s no Section 232 thing going on, there’s a chat going on in the background. But I think, more importantly, is that Cameco need to buy material to get what they need.
Matthew Gordon: We’ve talked about dealing with the oversupply in the market at the moment, eating that up, but you think it’s being eaten up at a rate which is unsustainable for very much longer. So, you must therefore be able to put a timeline on this when you think it’s going to…?
Daniel Major: I think by the end of this year we’ll have seen that momentum kick into gear. I think Cameco’s actions…unless something really aggressively comes out of the US Government, which I don’t expect it to occur. If they’d have done something super aggressive, I think they would have already done it. I think that demand pull for Cameco will start to move things. We’ve seen inventories gradually coming down elsewhere – if you look at UXC’s numbers for US, Europe, they are dropping. Then if you look from next year onwards, the uncovered contracts issue starts to become a much bigger problem, because at the moment they’re relatively well covered, Europe I think is covered next year, but even the EU came out, because not everybody is in the same place, so some utilities are well covered, some are less well covered, and they are starting to flag “guys – those of you who are less covered should probably start thinking about getting cover in”.
So I think, as you move into next year, that contract market’s going to become a bigger and bigger issue.
Matthew Gordon: I’ve looked back at videos for the last two to three years – the great and the good in there quoting when it’s going to turn out, how much it’s going to turn by. And you could argue – you just got there early, we’re ahead of the crowd. Or you could go “you got it wrong guys, for three years you got it wrong”, but we’re now at that point where everything’s there.
Do you think Uranium is going to become less susceptible to the turns in the market, because of the nature of what it is going to be able to allow people to do with regards to energy?
Daniel Major: I think it has the potential to do that. Will it react directly to it? I think given that it has a single big driver behind it, then I would agree with you that it has that potential to do that. And I think you and I… We all in various ways had all the right pieces, we were just all missing bits and pieces of it, which have had bigger effects than we have expected them to have. Section 232 has had a far greater impact than anybody ever thought it was ever going to have.
Matthew Gordon: It was a much bigger organic jigsaw puzzle than we realised and there’s a lot of people with vested interests and influence which had not been taken into account. Not by the big funds, not by anyone in the market place and it’s kind of a reality check when these moments occur. But what I’m more excited about is the fact that Uranium is getting to that point, despite the demand gap supply story is there, and the macro story is there, it’s going to get to that point where you can’t do without it, because there’s so much infrastructure being built now that, even say if there was a downturn, I’m not sure Uranium gets affected in perhaps the way it once would have?
Daniel Major: No I don’t….look – again we’re predicting if you like…
Matthew Gordon: Sure, that’s the fun bit isn’t it?
Daniel Major: Not going to comment, I’ll probably get it completely wrong! Look, the fundamentals that are all there - the tightness in the market, the fact that you’re going to have existing producing assets fading away. You’ve got about a two per cent growth in demand going out there; you’re going to have longer protection to the US reactors, I think you’re going to see more life extensions coming through. The fundamentals are all there for the Uranium market….
Matthew Gordon: At a macro level?
Daniel Major: At a macro level to be completely counter-cyclical if you had a falling market. What will affect, obviously, was if the market’s going one way and is that having a dampening effect on where it could go? Or is it going to completely ignore that? That’s going to be be your factor, which is a falling market – does it just put a brake on it? It will still rise, but it will just rise at a slower right because the market’s not helping it.
Matthew Gordon: So at a macro level, I think everyone is in violent agreement with each other. At a micro level, my concern is still in terms of this investment hacking-type advice we’d like to give people is – look at the small stuff - look at the management team, look at the asset, look at the economics, the fundamentals, those things still apply.
Daniel Major: Correct, absolutely.
Matthew Gordon: Daniel, thanks very much for today – I appreciate your time, I know you’re over there for the spot conference which starts tomorrow. So if anyone sees this today they should probably come and grab you there, shouldn’t they?
Daniel Major: Absolutely, that’s no problem at all.
Matthew: Brilliant, well thanks for your time, thanks for the insight as ever – loved it. Hope to speak to you when you get back to the UK.
Daniel Major: Absolute pleasure.
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