What’s your outlook for uranium? Can you provide an overview on where you see pricing, supply, and demand heading?
Warren Gilman: I think the person we all need to ask is the latest CEO of Kazatomprom, because he has influence on uranium prices. I’m not quite sure how much, but the price of uranium will go wherever the Kazakhs want it to go. They have that much influence. This rally that we’ve enjoyed for the past year has been courtesy of the Kazakhs, with some cooperation from Cameco, but let’s be honest, it wouldn’t have happened without them. We’re here enjoying US$70/lb because of them. If they want it to go to US$80, it will. If they want it to go to US$60, it will. If they want it to go from one extreme to another, it will. The rest of us have to just go along for the ride.
I don’t want to seem too pessimistic though because it’s a bull market and it’s been a great ride. I am concerned about the leadership of Kazatomprom and the revolving door that’s been there for the last two years. It certainly suggests that although they are still on point with respect to their strategy (value over volume), which is economically the best strategy to pursue, they remain on point with that messaging. As always, the proof will be in the pudding, and we’ll see if they remain consistent in applying that strategy.
Ross McElroy: That’s valid. The Kazakhs are obviously the powerhouse in the room. They dominate such a great deal of the market. I think the price of uranium has been following all the predictions. It’s up 40% on the year. We started the year at US$50. It’s now US$70 and seems to be marching upwards. I think the whole geopolitical situation is certainly causing a more rapid climb in price. Incidents in Niger lately (with the coup in government) and where might that replacement uranium come from, I think these are all stresses that are going to continue making the price travel upwards.
The incentive price of production, if you look at a global model, is still somewhere around US$100 or so. That really doesn’t consider the power of the Kazakhs and that they have been able to produce almost as much uranium as they feel like. I hope they’re taking the value over quantity notion. They’ve been applying it, let’s hope they continue. In our case, the emphasis is still going to be on North American assets coming into play to a greater degree than they might’ve been in the past.
Warren Gilman: The announcement last week was that the Kazakhs will go into full production as of 2026. The reactions from banks who follow the sector and the various consulting groups have been mixed. I’ve seen a headline from Bank of America saying that there will be no obstacle to the Kazakhs returning to full production. This caused concern. When you go on to read their report, however, it says that there will be ongoing shortages of sulphuric acid, piping, labour, and transport bottlenecks. They went on to list all the obstacles to returning to full production. In their forecast, they had full production on the supply side coming on as per Kazakh guidance.
Then you had some of the other brokers, like Scotia, that came out with a very skeptical analysis and said, “Look, there’s no way on God’s green earth that these guys are going to go back to full production. They can’t even get back to 80% of production.” In their supply forecast, they had an incremental increase. It’s surprising that there’s so much disagreement on a pretty transparent business. It’s not as if we don’t understand the Kazakhs or haven’t studied in-depth the Kazakh production platforms and what they’re capable of. It’s a public company and there has been a lot of disclosure over the years in terms of detailed production guidance and so on. It really is a bit surprising, amusing, maybe disconcerting, that we don’t have a better insight into what their capabilities are.
Nuclear is becoming more and more accepted as there is a growing realization that there is no path to net-zero carbon without it
There’s currently a lot of talk about bringing more production online with mine restarts as a result of these elevated prices. Do you see that happening?
Ross McElroy: Well, the restarts depend on what we’re looking at. Different places in the world can restart uranium at different prices. There’s really no shortage of uranium out there. What there is, is a shortage of uranium at the prices that exist right now or higher. There are several projects in Africa that could come online, but you’re still going to require higher prices. In the US, they’re at the point where they can break even or make a small profit from current uranium prices.
I think some of the old uranium deposits require significantly higher prices to restart. Development of new projects are certainly on the horizon, in the fairly near term. With our project, for example, or some of the exciting projects in the Athabasca Basin, they are very close to coming on stream. They’re not restarts, those are brand new projects, which have the potential to be replacements for the older, more mature mines in that area that are in their 70% usage life cycle.
Warren Gilman: The short answer is, we don’t have to worry about it. It’s just a rounding error. It’s not relevant. You have Boss Energy that’s going to ramp up to 2Mlbspa. That’s not going to have any impact on supply in this market. You’ve got Paladin Energy that’s going to ramp up hopefully to 4Mlbspa. Again, it’s a rounding error. The only new production coming on stream is Patterson Lake, and we’re looking at 2028. There is nothing of material significance that’s going to come on stream between now and then.
Government and other industry leaders are talking about nuclear’s role within the energy transition, but also as a secure source of energy. How will these two discourses help to strengthen the industry’s role as a key source of energy moving forward?
Ross McElroy: Nuclear is becoming more and more accepted as there is a growing realization that there is no path to net-zero carbon without it. It’s a key part of the energy transition and the move away from fossil fuels. If you look at all the renewables with wind and solar, even if they work, they’re currently only a small component. The economics behind them are not really panning out. Nuclear, as base load energy, is clean, green, and it’s getting a new banner.
We’ve always promoted nucelar as a clean fuel, but it’s only recently that I think that that has worked its way into the worldwide psyche. It’s in government policies now that nuclear is a key part of the energy equation. It’s classified as green energy in the European Union, for example, it’s part of the new renaissance.
Warren Gilman: It seems there’s growing universal acceptance that nuclear power is the future. Only three jurisdictions come to mind that haven’t quite got with the programme. Germany continue to go their own way, though that doesn’t seem to be stopping the EU. The EU is progressing on the nuclear front without Germany, which is great to see. That’s important, because that equates to significant pounds. The second one would be Australia. They’re well behind the curve. The third is Quebec, which has the biggest nuclear plant in the world, Bruce Power, right across the border in Ontario.
Quebec, obviously benefiting from an abundance of hydropower, has said, “We’re going to remain nuclear-free.” That’s great because they have the benefit of other green renewable energy sources. I don’t think that necessarily means they should be anti-nuclear, but they’re maintaining that stance, oddly enough, but from the benefit of a rich resource. Other than that, there’s virtually a universal acceptance that nuclear is the future.
We have the benefit of having seasoned investors, as well as a working operator within the industry. I thought you could talk about what it takes to get a project up and running?
Ross McElroy: For context, we have a development project at Fission Uranium in the Athabasca Basin. We’re at the point where we’re deep into the permitting side of the equation and we view it as being a producing asset. It’s on its way to being an operating mine by about 2029. That’s what we’re estimating on our timeline. Our discovery was in November 2012.
Warren Gilman: 2012 to 2029 – 17 years with a project that, without a doubt from the very first day, was going to be highly economic and in perhaps the best mining jurisdiction in the world to bring on a uranium project. That’s how slow this process is.
Ross McElroy: It really is. People don’t appreciate the timeline. Governments don’t seem to appreciate it either. In our case, a lot of the time spent from finding a resource and turning it into an operating mine, is on the regulatory side. It’s not easy, it’s not fast. It moves at the pace of governments and needs to be streamlined. I think we’re in the best jurisdiction as far as understanding. If you have a project, and you know it can get developed, it will get there. There’s great support at all levels for this, but it does take a great deal of time.
Warren Gilman: If you’re a mining engineer, you might get to develop one uranium mine in your career if you go into the uranium sector. In the gold sector, you might develop five or six mines in your career. Uranium, you only get one shot at it, if you’re lucky.
Where do you see the investment into this space? Is it happening at all and at the pace needed?
Warren Gilman: Right now, we’re in a bull market, so financing is readily available. We made our first investment in the uranium sector in NexGen Energy (TSX:NXE) in 2016. Back then, financing was non-existent. I think uranium at the time was US$30/lb going to US$17/lb. It was non-existent, perhaps for a good reason, because you had to have a long-term view on where prices were going, which we did, and we’ve been rewarded for it. We’ve got the benefit right now of Queen’s Road Capital itself, having 80% of our asset value in the uranium sector just when we’re in the middle of a bull market. We’ve been fortunate in that regard.
There is capital available, but it’s a recent phenomenon. As recently as a year ago, there was virtually no capital available. When we talk about mine development, how long it takes, and how many years, capital needs to be available consistently over many years in order to progress a project. If you have capital available one year in 10 or one year in five, it doesn’t solve the problem. It doesn’t give you enough capital to explore or develop a mine. Although, the good times are right now. That is not the solution unless this remains for many years, we’ll see.
Ross McElroy: Similar to NexGen, our discoveries are on parallel paths and have a similar need for capital. We were very hungry for capital in 2016 with a crummy uranium market, no interest, and no ability to raise money. We had a strategic investment from the CGN (Chinese state-owned enterprise) and that allowed us to be able to continue developing, drilling, and carrying on our economic studies on this long pathway to production. Right now, it’s relatively easy, everybody’s lining up. If you announce a US$20M financing, there’s probably US$40-US$50M of demand right there. At the moment, it feels like a fairly straightforward place to be able to get financing for your projects.
Warren Gilman: I would encourage everyone to go see Ross, because it is a great project. You should go see him
Panellists:
Warren Gilman, Chairman, CEO & Director, Queen’s Road Capital Investment
Ross McElroy, CEO, President & Director, Fission Uranium
