Deep Yellow: 'Funds Want to Invest in Teams that Have Built Uranium Mines Before'

• Deep Yellow is a uranium company focusing on projects in Namibia and Australia, with significant progress made since 2017.
• The uranium industry is experiencing a resurgence in demand, outpacing current supply capabilities.
• There's a critical shortage of experienced teams and companies capable of bringing new uranium projects into production.
• Deep Yellow is positioned with two projects on the development conveyor, having raised substantial capital and progressing towards project financing and detailed engineering.
• The need for long-term thinking in the uranium industry is emphsized, with current production plans falling short of projected demand by 2040-2050.

As the world grapples with the dual challenges of climate change and increasing energy demand, uranium is emerging as a critical component of the global energy mix. The nuclear power industry, fueled by uranium, is experiencing a renaissance that presents compelling investment opportunities. This resurgence is driven by the growing recognition of nuclear energy's role in providing reliable, carbon-free baseload power. For investors seeking exposure to the clean energy transition, uranium offers a unique proposition with significant potential for long-term growth.

Deep Yellow Background and Strategy

Deep Yellow is a uranium development company with projects in Namibia and Australia. Since taking over management in 2017, CEO John Borshoff has pursued a strategy of organic growth and strategic acquisitions to build a multi-project, multi-jurisdiction uranium company capable of significant production.

Borshoff explains the company's origins: "What we set out to do when we raised that $15 million in 2017, we have stuck to the nitty and developed a team as priority and expanded discovered tus really to its size and acquired through VII a fantastic project in West Australia."

This approach has positioned Deep Yellow with two advanced projects - Tumas in Namibia and Mulga Rock in Western Australia - both targeted for production before 2030. The company argues it is one of the few with genuine greenfield development potential that can contribute meaningful new supply this decade.

Projects and Development Plans

Deep Yellow's focus on building a multi-mine, multi-jurisdiction company aligns with the industry's need for diversified, reliable uranium supply. This strategy positions the company to potentially become a significant player in meeting future uranium demand. Deep Yellow is advancing its two flagship projects:

Tumas Project (Namibia)

• Definitive Feasibility Study completed
• 26-year mine life at 3.0 Mlbs U3O8 per annum steady-state production
• Project financing mandated and progressing

Mulga Rock Project (Western Australia):

• Acquired through merger with Vimy Resources in 2022
• Definitive Feasibility Study update underway
• Potential for 3.5 Mlbs U3O8 per annum production

Borshoff highlights that the company has secured project financing mandates for Tumas and is progressing detailed engineering work. He expresses confidence in the company's ability to execute on development plans, citing the team's track record:

"We've got a good bank mandated for the project financing... they have declared that one of the reasons why they feel comfortable supporting us in that is that that was the team that we delivered on Langer Heinrich and Kayelekera."

Management Team and Experience

The company is led by a team with a track record of success in the uranium industry. Borshoff's experience in building and operating uranium mines during previous market cycles provides valuable expertise in navigating the current market dynamics.

A key differentiator Borshoff emphasizes is Deep Yellow's experienced management team, which he argues sets the company apart in an industry where few have successfully brought new mines into production:

Borshoff states, "In 80 years of nuclear history there's only been three juniors outside of the US that actually built mines."

The Deep Yellow team, led by Borshoff, includes executives with hands-on experience in discovering, developing, and operating uranium mines globally. This track record, Borshoff contends, provides credibility with financiers and potential strategic partners that is crucial for project development.

Financing Strategy and Offtake Agreements

Deep Yellow is taking a measured approach to project financing, balancing debt and equity to maintain financial flexibility. Borshoff indicates the company is in discussions with multiple banks and is carefully considering the optimal capital structure:

"The question for us is that how much debt do we want it to and I want to go to depth with that but I don't believe it's a question of the funding, it's the question of the balance of those instruments."

Regarding offtake agreements, Borshoff states the company has initiated discussions but is not rushing to lock in contracts. He emphasizes focusing first on demonstrating project viability:

"[We] Concentrate on the viability project, the doability of it the delivery of it, and then when these things come together those ducks line up and you have the amount of off take that you need to support what you're doing."

This approach aims to preserve upside potential for shareholders while still providing the security needed for project financing.

Interview with CEO/MD John Borshoff

Nuclear Power's Role in Decarbonization

The urgent need to reduce greenhouse gas emissions has put nuclear power back in the spotlight. As countries strive to meet ambitious climate targets, many are recognizing that renewable energy sources alone may not be sufficient to meet baseload power needs while simultaneously reducing carbon emissions. Nuclear power, with its ability to provide consistent, large-scale electricity generation without direct carbon emissions, is increasingly seen as a crucial component of a low-carbon energy future.

The scale of this nuclear renaissance is unprecedented. This surge in reactor construction and planning underscores the growing recognition of nuclear power's role in achieving climate goals while meeting increasing energy demands. Simultaneously, the global focus on energy security, heightened by recent geopolitical events, has underscored the strategic importance of domestic nuclear capabilities. This has led to a reevaluation of nuclear power in many countries and a push to secure long-term uranium supplies from stable jurisdictions.

Furthermore, new players beyond traditional utilities increasingly influence the uranium market. The emergence of data center operators and tech giants seeking dedicated clean energy sources adds a new dimension to uranium demand.

As Borshoff notes, "These hyperscalers, microsofts... they've seen now with these data centers they want power, and these are not guys that take no for an answer."

Global Demand Growth

The demand for uranium is being driven by several factors:

1. New Reactor Construction: Countries like China, India, and Russia are aggressively expanding their nuclear power capacities, with dozens of new reactors under construction or planned.
2. Reactor Lifetime Extensions: Many countries are extending the operational lives of existing reactors, ensuring continued demand for uranium fuel.
3. Small Modular Reactors (SMRs): The development of SMRs promises to make nuclear power more accessible and adaptable, potentially opening up new markets.
4. Emerging Applications: Nuclear power is being considered for new applications beyond electricity generation, such as hydrogen production and desalination.

Historical Underinvestment

The uranium industry has suffered from years of underinvestment following the Fukushima disaster in 2011. Low uranium prices led to mine closures, project deferrals, and a lack of exploration for new deposits. This has resulted in a situation where the industry is ill-prepared to meet the projected increase in demand.Limited New ProductionBringing new uranium mines into production is a time-consuming and capital-intensive process. The lead time from discovery to production can often exceed a decade. This creates a significant lag between increased demand and new supply coming online.

Geopolitical and Technical Expertise Considerations

The concentration of uranium production in a handful of countries, including Kazakhstan, Canada, and Australia, has raised concerns about supply security. Recent geopolitical events have highlighted the risks of relying too heavily on any single source, prompting utilities and governments to seek diversification of supply.

One of the more significant challenges facing the uranium industry is the shortage of experienced teams capable of bringing new projects into production.

Borshoff emphasizes this point: "The whole feature of that period was price, price... so then what you end up is the industry that we have today, people could raise money and they could even raise money to finish off their feasibility studies, apart from a few exceptions."

Inventory Drawdown

Unlike many commodities, uranium is typically sold through long-term contracts between miners and utilities. This structure can provide stability but also means that spot prices may not always reflect the true state of supply and demand.

In recent years, the market has relied heavily on secondary supplies, including inventories and recycled materials. However, these inventories are depleted, increasing the need for new primary production. After years of depressed prices, uranium has seen significant price appreciation recently. However, current prices are still below the levels needed to incentivize substantial new production, suggesting potential for further increases.

Conclusion

For investors looking to gain exposure to the uranium market, there are several avenues to consider:

• Uranium Producers: Established uranium producers with existing operations are well-positioned to benefit from rising prices and increased demand. These companies can often ramp up production relatively quickly in response to market conditions.
• Development-Stage Companies: Companies with advanced-stage uranium projects offer leveraged exposure to rising uranium prices. As projects become economically viable at higher prices, these companies may see substantial value appreciation.
• Exploration Companies: For investors with higher risk tolerance, early-stage uranium exploration companies provide speculative opportunities. Successful discoveries could lead to significant returns, especially in an environment of rising uranium prices.
• Uranium ETFs and Funds: For those seeking broader exposure to the sector, uranium-focused ETFs and investment funds offer diversified portfolios of uranium-related equities and, in some cases, physical uranium holdings.

Challenges and Risks

While the uranium market presents significant opportunities, investors should be aware of the risks:

Nuclear power remains a politically sensitive topic in some regions. Changes in regulations or public perception could impact demand for uranium. Uranium projects face typical mining risks, including potential delays, cost overruns, and technical challenges. The industry's shortage of experienced teams may exacerbate these risks for some companies. The uranium market has historically been subject to significant price swings, which can impact the viability of projects and company valuations. Investors in the uranium sector should be prepared for a long-term investment horizon, as the development of new projects and the realization of market forecasts may take several years.

The uranium market stands at a critical juncture, with growing demand for nuclear power set against a backdrop of constrained supply. This dynamic creates a compelling opportunity for investors to gain exposure to a sector poised for potential significant growth. Companies like Deep Yellow, with advanced projects and experienced management teams, offer an intriguing entry point into this market.

The Investment Thesis for Deep Yellow

• Experienced management team with a track record of success in uranium mine development
• Advanced-stage projects in stable mining jurisdictions (Namibia and Australia)
• Strategic positioning to become a multi-mine, multi-jurisdiction uranium producer
• Potential to benefit from rising uranium prices and increasing global demand for nuclear fuel
• Progress towards project financing and detailed engineering for near-term development
• Diversified project portfolio mitigating single-asset risk
• Potential for significant value appreciation as projects advance towards production

Actionable advice

• Conduct thorough due diligence on Deep Yellow's project portfolio and development timelines
• Monitor progress on project financing and offtake agreements
• Stay informed on global nuclear energy policies and uranium market dynamics
• Consider Deep Yellow as part of a diversified portfolio approach to the uranium sector
• Be prepared for potential volatility and maintain a long-term investment perspective
• Watch for key milestones such as feasibility study completions and final investment decisions

Macro Thematic Analysis

The uranium market is at the nexus of several powerful global trends, creating a potentially transformative investment landscape. At the forefront is the urgent need to address climate change, which has repositioned nuclear power as a crucial component of low-carbon energy strategies worldwide. This shift is evidenced by the increasing number of countries incorporating nuclear into their long-term energy plans, from established markets like China and Russia to emerging nuclear nations in Eastern Europe and the Middle East.

The uranium market is poised for significant growth driven by increasing global demand for clean, baseload power and a looming supply shortage. Deep Yellow, with its experienced management team and advanced projects in stable jurisdictions, represents a compelling opportunity within this sector. The company's strategy of developing a multi-mine, multi-jurisdiction portfolio aligns well with the industry's need for diversified, reliable uranium supply. As the global energy landscape continues to evolve, uranium investments like Deep Yellow offer exposure to a critical component of the world's future energy mix, with the potential for significant long-term value creation.

For investors, this macro thematic presents a compelling long-term opportunity. The uranium market is poised for a potential structural shift, with demand growth outpacing supply capabilities for the foreseeable future. Companies with the expertise, assets, and strategic vision to navigate this complex landscape stand to benefit significantly. However, investors must also be prepared for the challenges inherent in this sector, including regulatory uncertainties, long development timelines, and the need for substantial capital investment.

In conclusion, the uranium market sits at the intersection of clean energy transition, geopolitical dynamics, and critical mineral security. As the world grapples with the imperative of decarbonization while meeting growing energy needs, uranium's role in the global energy mix appears set to grow, potentially rewarding those who have positioned themselves ahead of this long-term trend.