#15 Investors Excited, Kazakhstan Lockdown Continues - Brandon Munro (Transcript)

July 16 2020, 14:47 GMT+01:00

Bannerman Resources Limited

  • ASX: BMN
  • Shares Outstanding: 1.06B
  • Share price A$0.035 (16.07.2020)
  • Market Cap: A$37.06M

The extended lockdown in Kazakhstan impacts KazAtomProm's, the world's largest supplier of uranium U308 (24%), ability to get their employees back to work. This in turn means that so far as much as 8Mlbs of uranium has not been produced. However, despite this news, the company has maintained guidance with regard to being able to supply their term-contract customers. They are 6 to 7-months of inventory with which to draw on, but indicate that they will probably need to go in to the spot market to acquire uranium pounds to fulfil order (at still low prices) and maintain their stockpile position. What are the impacts for utilities and uranium investors. We discuss.

As COVID-19 continues to restrict production in Canada and impacts production in Australia and Namibia, we discuss the implications for junior uranium companies. Investors and potential investors take note.

And for Crux-Club.com members only, Brandon and I discuss why utilities remain inactive. What are they focussed on instead? And what has happened to the price momentum? We look at some of the factors. Please join the waiting list for Crux Club if you want to get more insight in to the uranium sector and other commodities from our expert contributors each week. All for less than a dollar a day

We Discuss:

  1. 3:43 - KazAtomProm's Announcement: Implications and Opinions
  2. 6:12 - News & Announcements from Uzbekistan: Struggles Dealing with COVID-19
  3. 9:28 - A Look at Australia, Canada and Namibia: COVID-19 Update and Impact on Businesses
  4. 13:05 - Get the Calculators Going: Growing Supply Deficits and What it Could Potentially Mean for Investors

Matthew Gordon: How are you doing, sir?

Brandon Munro: Yes, I’m really well, thanks, Matthew. How are you?

Matthew Gordon: Not bad. Not bad. I have a busy week. And got a lot on today so thanks for joining us from the cottage, it looks like?

Brandon Munro: Yes. It’s the school holidays. It is that big test. I feel like I am in a reality TV show – will I get the kitchen done in time? We have had trades people wandering around doing all of that. I’ve been doing a little magic with my hands. Or claiming to. Hoping it will be fixed up by someone else but saying that it was me. You know, one of those jobs. We have got a little bit of freedom here in Western Australia and I think when we can’t travel anywhere else it just really pays off to have a place of your own where the kids can just unpack and unwind and run around and do all that sort of thing.

Matthew Gordon: Yes, you guys in Australia and Canada have got so much in common: you have got so much land that everyone gets to have a second home. It is a very unusual thing here on our tiny little island of Great Britain. Very jealous. Very jealous.

Brandon Munro: Well, we have got something else in common because this little town I’m in, Bridgetown. It is beautiful. Fabulous place. But it has the record for being the coldest place in Western Australia. And as many of your people know, it is kind of hard to find cold places in Western Australis, it is normally the other end of the spectrum. So being the industrious people that they are, they even market that fact. Its tourism claim to fame is that it is called, ‘Fridgetown’, and so we start these days at the moment at about 1 or 2 degrees, which is a little bit fresh for the tootsies, but we manage, we adapt, we survive.

Matthew Gordon: Wowsers. I didn’t realise it went down that low. There you go – I have learnt something. But today we are going to talk about Uranium, as usual, for our weekly catch up. A new announcement from KazAtomProm.

Brandon Munro: Yes. Totally not unexpected. And we have been talking about it on our show for several weeks now and I think we drew similar conclusions. But it is helpful. It is good to have it out now. It is good that the market is now informed. And as people would know who have read the announcement, KazAtomProm have said that it is a month that they will be delaying the resumption of wellhead development and other operations. And that is pretty consistent with what was expected and what we were thinking. But the little gems in the announcement, I think, are in some of the side comments and what may or may not be able to be read into those. There is lots of the use of the word ‘initial’, ‘if safe’, ‘resumption’, and so forth.  They have left the door open quite clearly for an extension. Also, what is quite interesting is when the time comes to ‘resume’, whatever that means, it is quite clear that it is going to be a softly-softly approach here. KazAtomProm have said in their announcement that they will be gradually returning to wellhead development. And it seems like they are even going to test the waters a little bit with their logistics by resuming exploration first rather than wellhead development. I find all of that quite interesting. I think what we are looking at here is a company that is positioning for a real possibility, perhaps even a likelihood that this one-month period is going to have to be extended, if not in fact, at least in substance.

Matthew Gordon: I think the Uranium bulls are getting quite excited about that: the implications of an extension or a possible extension there. Are you hearing the same sorts of things?

Brandon Munro: Not really. Obviously, people are excited about what continued disruption can do for the tightening for the market and the Uranium price. But like many things, this is an announcement that was anticipated. It was expected. There isn’t anything that is a catalyst as such, and so we haven’t seen lurching prices on ASX etc, etc. I think the market has just kind of taken it in its stride for now.

Matthew Gordon: I couldn’t help but notice that Shell also made an announcement this week with regards to Kazakhstan. What do you know about that?

Brandon Munro: Well, they have announced that they are withdrawing all of their staff. They have chartered a couple of jets and they are taking them all back to the Netherlands and then they will be distributing all them around the world. That in itself is very telling; the word is because they cannot be absolutely sure that their people there will get adequate medical care, which isn’t a slight on Kazakhstan at all, I mean, that is exactly what has happened to any country that has really grappled with either a first or a second wave COVID problem. But what is says to me is that in their judgement this isn’t a problem that is just going away in just a couple of weeks. They can’t just simply tell their staff, stay at home, lock yourself down. Take full-paid time at home for two or three weeks and then we will ride this one out. They have probably already been through that thought process, and now they are saying, look, we are better off taking the hard pill and actually moving everyone out. And you wouldn’t really do that for a matter of two or three weeks. There seems to be some longer-term thinking. 

And the moves that big, enormous majors, particularly in the oil and gas sector in this part of the world, make are always a leader. It is always influential to both private and public enterprise. I think it is significant that Shell have made this decision. It will be really interesting to watch what some of the other partners, Chevron and others do in its wake.

Matthew Gordon: And the other thing I noticed was Uzbekistan – they put out a press release. So that whole region is really grappling with how to deal with what’s going on there with COVID-19?

Brandon Munro: That’s right. Uzbekistan is now back into lockdown. Not quite as rigid as the initial lockdown, but for all intents and purposes the same. So now we get to watch what Navoi Mining, the Uzbek state-controlled Uranium miner does in response to that. Do they just carry on, or do they take the lead from KazAtomProm? The dynamics are very different here – we need to be clear on that. Navoi Mining, they sell mainly off the market: to the traders, to the Indians, to the Chinese. They aren’t a market participant to the same extent that KazAtomProm is. They are not the dominant player. Whilst they are still firmly in the Top 10 of Uranium producers, and any significant disruption there is going to affect 2020 supply, they are not going to be thinking about the market in the same way that KazAtomProm might be, or Cameco might be for that matter. I think they will be more reactive. But I think that just illustrates what a regional issue this timing of this second wave that is being experienced in central Asia.

Matthew Gordon: That’s what strikes me about this: I think that Uranium bulls looking at this will be just encouraged; it is just another story around supply that they can confirm their beliefs about. Why don’t we just do a round up and then maybe have a conversation about supply and then have a conversation about Australia, Namibia, Canada, if you may? So, Australia – all good?

Brandon Munro: Australia is all good in South Australia and Western Australia. And to a lesser extent, Queensland, which are the major mining centres, Northern territory included. But we are experiencing our own second wave in the State of Victoria which doesn’t have any Uranium mining or exploration or any Uranium influence whatsoever. But it is just a healthy reminder to the rest of the country that these things can escalate very, very quickly, and that is what we have seen. Victoria has just announced a fairly hard lockdown of all of Melbourne, the capital city there of 5M people, for 6-weeks. So South Australia has got its border closed with Victoria. Western Australia has got its border closed with everyone at the moment and probably for some time to carry on. But no foreseeable disruption to mining. Just a reminder that a second wave of COVID can potentially be more painful than the first.

Matthew Gordon: And news out of Namibia?

Brandon Munro: Yes. Namibia, the Erongo Province, or the Erongo Region, as it is called in Namibia, they are back in an extended lockdown for another 28-days. It was announced earlier this week. That is very difficult for the local people. Very problematic for many, many reasons. Mining has been exempted as an essential service, so Rossing and Husab can carry on. But as we have talked about many times, it is still that element of greater difficulty that is involved as a result. And there has been a bit of press about increasing industrial relations tension at Rossing. You might also see the interplay between those two things. I am still expecting disruption at the edges of both of those giant Namibian projects.

Matthew Gordon: We have an analyst based in Namibia. We were talking to him this morning. And he was saying, you know, obviously with youth unemployment quite high and poverty levels as they are the dependency on mining is there, but at the same time they have got to manage this in a responsible manner. And I think they are doing that, the Namibian government. Interesting. And then Canada – what is happening at Cigar Lake?

Brandon Munro: Well, nothing is happening but what is very noteworthy is that Northern Saskatchewan is still grappling to get COVID under control. And it is an outlier compared with most of Canada. And that is really the driver here. I don’t see Cigar Lake coming on anytime soon. I think it is entirely feasible that we could see Cigar Lake remaining off until the end of the calendar year even. And what always happens in these situations is that when you put a project into care and maintenance, as effectively Cameco has, it is a little bit like jumping into a cold swimming pool or a cold river – it is damn painful at first, but you do adjust. You do acclimatise. And there is probably an element of that going on corporately. All the while, we haven’t seen much of a spot price response and we haven’t seen the utilities bashing the door down with Cameco to start term contracting. Whilst there are health and safety concerns as we continue to see persisting in Northern Saskatchewan, I don’t see Cameco sort of chomping at the bit to change the situation at all. 

Matthew Gordon: The supply side of this macro story, is certainly… I think we are able to work out some numbers now. We are starting to get a sense of how much disruption there is going to be on the supply side. You are talking about end of year for Cigar Lake. That is all of a sudden vey meaningful. The implications of Kazakhstan’s operations being delayed a month and potentially more – that is 4-months now, right. That has huge implications. I am hearing, you are saying that Namibia may be having minor disruption, and the same for Australia, which is something. But are you starting to get a sense of the deficit in the marketplace as a result?

Brandon Munro: Absolutely. If we go back to our discussions in April, for example, I was projecting a 20Mlbs 2020 disruption. So, in other words, forecast of 2020 production I was predicting 20M lbs short compared with what the case would have been at the beginning of the year. Now, that was prefaced on Cigar Lake being off for 4-months, Kazakh operations being disrupted for 3-months and relatively minor disruption in most other centres ranging between about 5% and 8% of annual production. Now, the only one of those areas that has outperformed my expectations is Australia. But Olympic Dam had significant disappointment on the production side for unrelated reasons. So that was largely evened out.

So, now we look at it, it is not operations are down for 3-months, it is notionally 4-months, and every chance that with the slow resumption of wellhead development, that is going to look lie 5 or 6-months. Cigar Lake, which is in care and maintenance for 4 months and counting and quite possibly going to go to the end of the year. Namibia and others that are dealing with second waves. So that 20Mlbs is locked in now, and the question is, how much does that grow? Does 20M lbs go to 30Mlbs of disruption? If these significant players stay off to the end of the year, we could be talking about 50Mlbs of disruption.

This is still brewing as an astonishing supply side event for a sector that is already very tight on the supply side. And all the while utilities and intermediaries are distracted with other issues and other matters. So we have seen a little bit of a recovery in the spot price, but given the risk here to the supply side for the rest of the year there has been no price response to talk about, which just stretches the ‘lacky band’, or the rubber band even further, and it makes for an even better close to 2020 or 2021 if you are sitting in the seat of a Uranium investor.

Matthew Gordon: Well, this might be the perfect point to switch things over.  I am just going to say to our regular viewers, I hope you enjoyed what Brandon had to say. We are now going to move into the Crux Investor Club section where we will go into a bit more detail about price, why it hasn’t moved and what utilities are doing and what the implications are for investors. So, thank you very much for watching.

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Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

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