Dustin Garrow - Uranium Contracts Just Became Interesting

Interview with Dustin Garrow, uranium market commentator.

As an advisor for numerous uranium companies, Garrow knows a thing or two about the uranium space. We've spoken with him several times previously, and on each occasion, he's helped us further unravel the complex and opaque story of uranium. In this interview, we cover a variety of intriguing topics.

Matthew Gordon talks to Dustin Garrow, 14th June 2020

We then discussed uranium powerhouse, Cameco. Cigar Lake remains down and has now been down for 2.5 months. The shutdown has been repeatedly extended, and a determination to bring about uranium destocking to drive spot price up is one motive for this. It is currently shut down indefinitely. The Port Hope uranium conversion facility has reopened. There is no indication whatsoever that Cameco intends to reopen Cigar Lake in the near future. Cameco appears to want its new contract portfolio in place before it reopens the mine. Both Cameco and Kazatomprom, the two largest uranium players globally, have indicated that they will purchase uranium from the open market to fulfil their existing uranium supply contracts. This looks like an effort to drive spot price up, and it could well be effective. The timescale all depends on just how much inventory these utility companies possess. It's far from a united front for the two uranium giants, but they are definitely singing from the same hymn sheet.

Kazatomprom has already stated that the carry trade is becoming increasingly obsolete, having publicly repudiated several multi-year sales agreements with traders. Are carry traders about to be wiped out? Traders thrive off large available inventories; they focus on mobilising it and getting it into the market in any way possible: spot, mid-term, long-term, etc. While the carry trade is certainly going to take a major hit, I'm not quite sure it's going to be extirpated just yet. Carry traders can be extremely creative, and utility companies may still make use of them in some way.

Jurisdiction is becoming increasingly important for uranium investors as we approach the new upcycle. There is a substantial discount on most uranium juniors right now, and jurisdiction plays a big part in this. Cameco's material comes from a stable mining jurisdiction, and this appears to be eminently more desirable than any jurisdiction with so much as a hint of volatility.

Euratom released an analysis of nuclear fuel availability around 3 weeks ago. Lack of investment in new uranium mines has dropped down from number 1 to number 4 on the list of most pressing risks for utility companies. Transportation hubs are now the number 1 risk: moving class 7 (highly-radioactive) material globally. A lack of grassroots exploration consolidates these issues. Euratom is far from happy with the market.

The uranium space is missing around 70Mlbs of production from the various care & maintenance and cutbacks seen in the uranium space around the world. This is half of what total global uranium production was last year: it's starting to become a very big number indeed, and these lbs won't be recaptured anytime soon.

In terms of the EIA Uranium Marketing Annual Report, many junior uranium players have been very disappointed, because it indicates that the utility companies aren't particularly worried and have bigger priorities right now than securing uranium contracts. It's especially surprising that the utility uranium inventory actually increased slightly. Share prices don't look like they are going to be affected for some time yet.

We've previously spoken about Energy Fuels' foray into the rare earths space, courtesy of the companies renowned White Mesa Mill, Utah. Garrow thinks that there is a growing focus within the U.S. that the rare earths industry needs to be more "vibrant." Since he worked alongside them many years ago, he thinks Energy Fuels has done an exceptional job of making a uranium-specific mill much more flexible. This is smart monetisation, and Energy Fuels could be part of a possible rare earths renaissance in the States. However, this is some way off yet.

We interviewed Peninsula Energy earlier this week. The company has just raised A$40M out of nowhere to pay back a debt held since 2016 and push their low-pH ISR solution forwards at its flagship project. Garrow says this technology has not been utilised in Wyoming since the 1960s. It looks like Peninsula Energy is trying to avoid staying still by meeting the market somewhere in the middle on cost. It doesn't look like the company will diversify anytime soon.

The uranium market as a whole is gradually getting more excited, but this is still tentative. There is capital available, but uranium companies need a great, strong story. The project and management team need to be excellent to convince investors to take the leap. There is a lot less option money flying around. Marketing for uranium companies is more important now than ever. Many will not survive, and many wouldn't even survive long-term if the market went to US$100/lb. Investors can get excited, but Garrow encourages them to scrutinise a company to the fullest extent before acquiring a position. His personal tip is for investors to consider focussing on companies that fit their own investment strategies and desired risk profiles. Some investors may not ever want to invest in a uranium producer, because they are very susceptible to the impacts of price swings. It is all a matter of personal taste. Investors have to be able to read between the lines and identify bullsh*t when they hear it because there's likely to be an increased amount of that in the coming months.

Lastly, short-term loans are becoming increasingly tricky to negotiate for uranium companies. this is partly due to collateralisation in a rising market. The loan fees simply haven't been worth the hassle of negotiating complex deals for certain lenders.

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