Deep Yellow (DYL) - The Next Uranium Producers Will Come from Africa

Deep Yellow is an advanced exploration and development uranium company focused on its Uranium assets in the African country of Namibia. The company has been active in Namibia for years and has been able to increase its mineral resource in that time. The company is currently underway with a definitive feasibility study of its Tumas project and remains on track to publish it by the second half of 2022.

Matthew Gordon spoke with John Borshoff, Managing Director of Deep Yellow (ASX:DYL) to discuss the company’s recent activities as well as the uranium space in Africa.

Company Overview

The CEO and Managing Director of Deep Yellow Ltd, John Borshoff, believes that the African commodity sector should not be referenced uniformly but should rather be viewed separately as individual countries. The African commodity sector of each country has its advantages and disadvantages and should be handled by investors as such. He further believes that even though the grade of North American operations, such as those in northern Saskatchewan, are higher than that traditionally found in African deposits, such as Deep Yellow’s 600 ppm uranium operation in Namibia, the cost of production is approximately the same. Borshoff believes that it comes down to the support of the country in which the operation is located that will determine its success.

Borshoff further believes that any company with assets in Africa knows how to weather the business waters and how to go about with governmental processes or requirements. The governments of countries like Namibia, understand that the mining sector must be invested in and needs to be developed to enable the creation and operation of new mines and contribute to the economy. The Stability of the African uranium market is secured, according to Borshoff, in part thanks to large Chinese operations and investments and he believes that the African continent remains a good investment.

Deep Yellow

Deep Yellow Ltd. boasts an experienced management team with a proven track record of development and uranium production. The company is advancing a dual pillar growth strategy which is aimed at establishing a multi-mine, low-cost tier-one uranium company producing between 5 and 10 million pounds a year.

The dual pillars of the company’s growth strategy, namely organic and inorganic growth have been driven by John Borshoff since he was appointed as CEO and Managing Director in October 2016. Borshoff has more than 40 years of experience in the uranium industry including operations in Australia as well as Africa. Borshoff is the founder of Paladin Energy Ltd and built the company from a junior uranium explorer to a multi-mine uranium producer with a USD$ 5 billion market cap at its peak.

He is a member of the Uranium Forum within the Minerals Council of Australia and is also part of the Council of the Namibian Chamber of Mines. Borshoff has been involved in the African Uranium industry since 2002 and is regarded as a uranium expert globally.

Borshoff believes that the company’s assets have long-term potential and states:

“We have been working here for 5 years and have been hugely successful developing 1 project. We have increased the resource by 4 x. It looks like it's going to be a 30+ year deposit and we are now exploring our second, which will give us a - would you believe - a pipeline in-country. We will have options there. It has done very well. The country we're in is ideal for what we need and for the times, and that's Deep Yellow.”

The African uranium market and how to do business in Africa

Borshoff believes that the African uranium sector plays an integral part in the nuclear power industry’s supply chain security.

There has long been a debate regarding North American uranium operations and deposits versus African uranium operations and deposits. The North American uranium sector does benefit from higher grades, especially operations in northern Saskatchewan close to or in the Athabasca Basin. The African uranium sector on the other hand has a lower grade but holds larger growth potential due to it being historically underexplored. Borshoff believes that even though the grades of North America is higher, the average production costs do not differ drastically he states:  

“Even though it's 10% grade, it is still costing about USD$ 15 - USD$20 per pound to produce. Our 600 PPM is costing about USD$ 27 per pound, so there's not an order of magnitude difference in terms of operating costs as what the grade would suggest.”

The African uranium sector holds far more promise than that of North America according to  Borshoff and he believes that junior companies have the opportunity to develop deposits into operations easier and faster in Africa than in any other part of the world. The mineral sector of Africa holds large potential and Borshoff believes that the sector has shown it can compete internationally.

“…there's so much upside in Africa, in particular in commodities. It's really shown that it's competing extremely well against other countries, and I think it's an untapped region.”

The African continent and the majority of its governments are committed to developing the mineral sector, no more so is the government of Namibia. The country understands that to have a mining economy you need to invest in exploration and in the finding of new deposits, only through this will you have new future mines enabling the industry’s growth.

Certain terms confuse and scare the international investment community with regards to the African mineral sector including BEE and profit-sharing with communities or the government. The misconceptions lead to fears of mineral sector nationalisation as can be seen currently in Chile. Borshoff however explains that even though these terms sound intimidating, they are not a detriment in the modern era and more a responsibility that is no more different than the social obligation to first nations in North America. 

“When you have a country that is in, let's say, since year 2000, which is now nearly 25 years of uranium production, and it's essentially had a fairly stable environment in terms of royalties, in terms of BEE, and there is some acknowledgement that there has to be a bit of a sharing like it is in Northern Africa. It's 5%-10% pay your way. That is not, for me, a detriment in the modern era, and it certainly is a responsibility no more so than the Inuits in Canada”

The far larger risk to the African uranium sector and the global nuclear industry is the international regulatory framework. The African continent holds high potential according to Borshoff and he believes that the next big Uranium producer will come from Africa.

“Africa is a great country and there is no other uranium group that can say, I've done well with a producer out of North America, I'm talking about Canada, and the little ones in the US are a different story. They are more delicatessen-style little producers and we'd need corner stores everywhere, but the bigger ones are going to come out of Canada and Africa, there's no question.”

Impending energy crisis

The impending energy crisis of the world is not the only possible catalyst for the African uranium sector, adding fuel to the fire is the current geopolitical situation unfolding between Russia and Ukraine.

Russia recently announced that it had signed a 30-year gas supply contract to China via a new pipeline. The supply agreement will see the Russian state-owned Gazprom supply 10 billion cubic metres of gas per annum to the East. The agreement may have an effect on the European energy sector as various countries are dependent on Russia for the supply of gas.

The signing of the agreement, coupled with the increasing strain between Russia and the West and Russia's influence in various countries may lead to a scarcity in the uranium sector. Borshoff states that the possibility exists for Russia to influence the country of Kazakhstan specifically Kazatomprom to provide more of its uranium to China and away from the west.

ESG

Borshoff believes that the Environmental, Social, and Governance (ESG) component of all operations is sometimes detrimental to the operations themselves. He explains:

“Basically, I don't mind ESG at all. Being in the uranium business we've had to uphold some of those ESG values way before they became fashionable, because of stakeholder issues, sensitivities and the whole industry built around how you try to support and get things where most other commodities didn't have these worries so they'd just play out on traditional ground.”

The challenge becomes when individual and corporate investors no longer invest in certain industries due to the ESG aspects. Borshoff believes that the energy sector is currently facing such a challenge. The need to invest in traditional forms of energy generation still exists as the global community moves to a renewable and green form of energy. The interim need for investment in traditional energy generation is to ensure there is sufficient supply whilst the sector transitions.

“There is some latitude necessary in how investments are allowed, and it's actually coming to that. It's difficult now to invest in coal and oil, and yet there is an interim need to invest in that to make sure there is a sufficient supply of material that is needed while we're going from A to B, wherever that is in the time frame.”

The current geopolitical sphere, coupled with impending shortages in traditional energy generation commodities will lead to an increased demand for uranium for the global nuclear industry. Borshoff believes that the African continent has an integral part to play in this sector and with the security of the African mineral market thanks to its relationship with China, the African Uranium sector remains an attractive investment with great potential to deliver the next big uranium producer.  

To find out more, go to the Deep Yellow website