Matthew Gordon talks to Brandon Munro, Uranium Expert and CEO of Bannerman Energy.
They discuss how Boss Energy is the third uranium junior to raise equity for uranium purchases, tapping the market for A$60M so they can acquire 1.25Mlbs and why Boss is in the strategic sweet spot for such a deal.
Matthew Gordon: Let’s talk about juniors raising funds to buy uranium because last week we talked about whether we thought more juniors would follow suit and we said it’s probably not a good idea for a lot of companies. Is it a good idea for Boss to have done this?
Brandon Munro: I think they’ve done it really well, timed it well, and it makes a lot of sense for them. I think although they’re not the first, it’s a strategy that’s really grounded in good thinking and they do have good management capability sitting around the board as well. I trust their judgement and I think it’s a good move.
Matthew Gordon: Companies are raising money specifically to go and buy pounds in the market. Those are the conditions of the raise. Do you think there will be a point where they go, ‘Do you know what, we’ve been trying to buy pounds in the market, but we can’t or we’re unable to therefore we’ve got all these millions here?’
It wouldn’t be the first-time money’s been raised for one thing and then perhaps some of it finds its way into other silos, or other spending. G&A is clearly one of those things because it sits in one bank account, right? Who monitors that? Who regulates that? Do the financiers who raise the money care or are they long gone? Is it down to the shareholders to say, ‘Hang on a second, you’ve not done what you said you would?’ Does the money get returned to people? What happens in those different use cases?
Brandon Munro: If those companies are raising under a placement, there’s very little regulatory stick that’s involved there. It’d be different if they were raising under a prospectus, for example, then you’re making commitments about the use of funds, the stock exchange can come and hold you to that. That’s why it’s important that the big boys in the sector - the big financiers, specialist Uranium investors - are involved because they will see it as beneficial for the company and beneficial for the sector and of course, their own investments in the sector.
Social accountability is probably the only lever that’s there to make sure that this happens. What we all hope is that any company that does raise funds for the purpose of buying a set number of pounds is willing to chase the price to accumulate those pounds, rather than go, ‘Whoops, it’s gone up $1, we’re going to give ourselves a salary raise and start looking at an acquisition.’ Now, when it comes to Boss, they’re sophisticated. Sashi Davies is in the market, she’s got all the relationships. I’d be surprised if they hadn’t already secured the pounds one way or another so I think with that company, you can feel pretty sure that if they’ve been willing to put a number on the Uranium acquisition, they know exactly what they’re doing with that.
As for other companies in the sector, you’re on a spectrum of conservatism through to flamboyancy. If we start to see additional companies raise money for that reason, I do think there will be some scrutiny, I think it’ll be applied by investor groups who have a vested interest in seeing that those pounds are indeed deployed into the spot market.
Matthew Gordon: I’d be interested to see if that actually happens. I get Boss. Duncan’s a good guy, Sashi’s great. Good people. But there will be others who try this. They see this happening and they see how easy it is to raise money on this basis because of where the spot is, etc. and people who don’t look too deeply at these things. Not only do you raise money quickly, relatively cheaply, because the discounts being applied here aren’t crazy, but your balance sheet looks fantastic, and people quickly forget that 80% of that cash balance is allocated to buy pounds in the market. It does a lot for a company and that’s why I’m a little bit nervous about the fact that some people may come in and take advantage of this situation. It wouldn’t be the first time we’ve seen it. That’s why we ask.
Brandon Munro: Bear in mind that for a company where it doesn’t make strategic sense this is expensive money to be buying Uranium. Yellowcake can raise money at a far lower cost of capital to buy Uranium than a company that’s got a risk profile where investors are expecting a 2, 3, 5, 10 times return. At some point, I think the market’s going to want to apply some brakes there as well. If you start seeing explorers raising money to buy pounds, I think that is an absolute warning signal.
That’s where a rational market needs to come in and say, ‘No way. We’re not giving you money to go drilling 1 in 100 holes only to have you turn around and buy physical uranium. Sure, Uranium’s going to double or triple - but if I want that risk profile, I’ll put it into Yellowcake or I’ll put it into UPC.’ There aren’t that many companies that I think have both the strategic rationale for doing it, and a cost of capital that’s matured enough that it approaches the risk profile of owning physical Uranium.
Matthew Gordon: That’s the sensible view of it. You and I see, and we saw it last year a lot especially with Gold companies, there are a tonne of Gold companies where it didn’t make sense for them to be raising, certainly not for the things they were talking about doing. They didn’t have that maturity, yet they got funded because if you can tell the story good enough, there’ll always be some idiot willing to give you their money. They’re going to lose their money, but they’ll give you their money.
I think that’s what I would be slightly nervous of, seeing people taking advantage as we saw last year with some Uranium companies cropping up with management teams who’d got nothing to do with Uranium, no experience, no knowledge, they just want the word Uranium in the title and we’re off and running. We joked about that a few times in terms of name changes. That would be something I’d look to see going forward because they’ll just view the money, their end game’s not the same - it doesn’t matter if it doesn’t make sense. G&As, I know you were joking about it, but not really is the end game, right? Anyway, we’ll keep an eye on that one. I think it was interesting that Boss has done it. As you say, probably one of the few that it makes sense for.
Matthew Gordon: You’ve been putting in the hours for us poor folks here, so we didn’t have to. You attended the NEI online. Was it good? Were you impressed?
Brandon Munro: Yeah, it was really good. NEI, the US-based Nuclear Energy Institute, had the State of the Nuclear Industry Address. It started with a 30-minute address by Maria Korsnick. She’s their CEO and very, very good.
Matthew Gordon: Background?
Brandon Munro: She’s someone who’s run nuclear plants, so she’s got all of the engineering smarts and all of the cred, but very well polished. She really was like a newsreader. Well scripted speech and clearly delivered for a political audience. It’s delivered almost directly to the Biden administration and in some cases, some of the States. It covered the enormous opportunity that we’ve got as a nuclear industry to deliver into this groundswell of decarbonisation investment. And it painted a very clear picture as to how the US needs to go further than what they’ve put out in their working group report in terms of re-seizing the initiative and nuclear exports. I
t’s really an excellent speech. It targeted plants in Coal communities so that we can build back better. We can enable those communities to stay where they are, stay with the social fabric that they’ve got. She talked about how in her own experience working at a nuclear power plant, quite often they bring Coal plant workers in to do some of the changeover work and that type of thing, so it hit the high notes in terms of how transferable those skills are, like operating a turbine room.
Matthew Gordon: Who’s the audience that they’re actually aiming at?
Brandon Munro: This one was clearly aimed at policymakers and their constituencies. It’s great viewing for anyone, including any Uranium investors. It is worthwhile to see something being done well. It paints a picture as to where the opportunity is if the nuclear industry can get their act together but clearly, this was a message directly to the administration and the state as well.
Matthew Gordon: That’s interesting. I think we should talk about Sweden, right? We have seen France kick the can down the road, we’ve got the Germans just having a little rethink. The Swedish government has come up against some problems having shut down 4 of their reactors in the last 5-years. They’re perhaps having a little rethink too. I think they’re getting permission to have a little rethink, not just because they haven’t got the consistency of energy supply but because of the narrative that seems to be blooming out there globally at the moment so perhaps the politicians don’t feel so bad about putting it back on the table. Do you think that’s right?
Brandon Munro: Unfortunately, in Sweden, it’s become a left, right thing as well. You’ve got the Green Party, who remain resolutely anti-nuclear and pro rainbows and unicorns renewable delivery. They are wilfully blind to the amount of fossil fuel-derived electricity that gets imported from Poland and Germany whenever there’s a little hiccup in the wind power. It’s not a particularly well-suited county for intermittent renewable. It’s not baking sunshine like we have in the Australian desert or Morocco. It’s really unfortunate. They had decarbonised with France well ahead of the pack with nuclear. Vattenfall has been at the head of social engagement of nuclear power. They were a regular coming down to Namibia to do social due diligence into all of the projects, so they knew where their Uranium was coming from.
Back in the 1980s, Sweden was writing the rulebook for the 21st-century nuclear power, and then sadly they’ve gone the way of the far left in Europe and shut down perfectly operable, profitable reactors. I’ve spent a bit of time in Sweden over the last couple of years, in the south of Sweden where they’ve now shut down their reactor fleet. Talking to people, the sentiment was really quite mixed even at that stage. The last time I was there it was interesting because the people I was talking to were saying they’d now reached peak wind in Sweden. I said, ‘What do you mean?’ ‘Well, we’ve got so many wind turbines now that when the wind blows, every additional turbine that gets added to the grid actually reduces the aggregate profitability of wind power in Sweden because they’ve got too much wind, and except on very low-wind days, they’ve got too much wind in Sweden when the wind is blowing. It’s totally messing with their grid, reducing the revenue that comes through wind power while increasing the cost of electricity when the wind isn’t blowing at the right level.’ It’s really disappointing to see a nation like that turn its back on nuclear energy.
Matthew Gordon: Let’s see. I remember when you and I started having these conversations a couple of years ago. We were talking about the left and the right politics and that debate that they would have with each other and it was just political point scoring without any real understanding of the facts or the data, or any care to understand the facts of the data. I just sense that as we’ve been talking this year, the narrative is evolving and changing. The support is there from some very high-profile individuals and groups, even governments now are wrapping their heads around it. This NEI online webinar that you did this week really suggests that people are getting their act together and coming together with a concerted effort to try and get governments to wrap their heads around it. Or give them the information and therefore the permission to be able to put it on the table politically, because that’s always the difficult one here, left, right, etc, and get both sides to come together and go, ‘Look, it’s green, clean, zero-carbon, whatever that narrative is or has become.’ These are exciting times, but we need to tell the spot price now, don’t we?