Brandon Munro - When the Needle Starts Clickin' it's Where I'm Gonna Dig (Transcript)

January 29 2020, 12:13 GMT

Interview with Brandon Munro, CEO of Bannerman Resources (ASX: BMN).

Munro gives us a detailed response to the question, 'Last year was another uranium trainwreck. What is happening?' Uranium investors are desperate for some good news; it's been all too long since they heard any. However, Munro explains in this interview that beneath a surface of squalor lie plenty of reasons for investors to feel a little more chirpy. However, there are also some reasons investors need to stay grounded.

If investors buy into the uranium macro story, they simply need to keep their faith. Munro argues all the uranium market requires is a sentiment shift in order for investors to begin seeing results. However, there are a few more substantial pieces of verifiable information; there are signs of things moving behind the scenes, and indications spot price could decide to awake from its prolonged slumber. Industry insiders claim UF6 reserves, held by utility companies, are all but gone. EUP conversion price has risen by 400%, unbeknownst to many investors. The price of uranium enrichment has also risen from US$30 to a more sizable US$50.

The information presented by Munro is positive for investors, but let's stay calm and pragmatic. Nothing has changed just yet. Additionally, Munro, like many industry experts, explains uranium is very unlikely to reach the US$150/lb peaks of the previous cycle. Instead, a sharp peak of US$90/lb is seen as more feasible, followed by a fall back to a stable and consistent US$50-60/lb. There is no nuclear renaissance hype in the present day to drive prices to their previous highs.

Munro also touches on some issues that have been doing the rounds in the Crux community as of late, specifically the Sahel terror situation and the disastrous impact it is having on some mining companies.

Bannerman Resources itself hasn't seen a great deal of share price movement this year, but Munro claims it is primed for growth in an imminent bull market, given its strong, experienced management team and solid portfolio of assets in favourable jurisdictions.

Interview highlights:

  • Difficult 2019, What's to Come in 2020?
  • Uranium Inventories: A Historical Overview & Problems Arising
  • Markers for Investors: When is the Market Going to Recover?
  • Joint Comprehensive Plan of Action: What's Changing in the Geopolitical World?
  • How will Political Turmoil Affect the Uranium Market?
  • Return of the Peaks: How Quickly Could it Happen and is it Outright Possible?
  • Future for Uranium Juniors
  • A Look into Bannerman: Importance of a Seasoned Team and a Mining-Friendly Jurisdiction

Click here to watch the full interview.

Matthew Gordon: Hi Brandon. We last met at the World Nuclear Association event in London where you sit on a couple of committees.

Brandon Munro: I sit on a working group that isproducing the next nuclear fuel report. It was released in September, in 2019,so we have now started kicking off with the 2021 report. So I am involved inthree of the working groups and I chair the working group that determines thedemand projections for nuclear fuel projections out to 2030.

Matthew Gordon: You have had a few meetings in Londonthis week, a few working group sessions this week, you kindly agreed to comeand tell us a little bit about what you are discussing. So, last year –difficult year. Another difficult year for Uranium. I’m not quite sure anyoneknows what’s going on. Do you?

Brandon Munro: I can hopefully share a couple ofinsights with you: what we have got is an extraordinary situation where thevisual part of the market, which of course is the spot price and thenon-existence of any real term volume.  Thereis no real price discovery, but the extent to which this exists in the spotmarket, we’ve got something that just looks dull, boring, disappointing andthat’s had a corresponding effect on most equities.  It has been carnage out there for the lastyear for many, many companies. But what we can see taking place under thatvisual surface veneer, I think is very positive for the sector.

Matthew Gordon: Let’s look at a few of those moving parts:  behind the curtain, because people talk aboutthe macro story. There is billions and billions of dollars of nuclear reactorinfrastructure being built across the world, in multiple jurisdictions andcountries. And people focus on Germany, reigning things back, the French did,now they are not. But there is more to it than that in terms of thatinfrastructure build out, but I don’t want to talk about that today because Ithink that is well covered. Can we talk about the inventory side of thingsbecause I think you have talked in the past about different piles of U308 and UF6and EUP, what is happening there?

Brandon Munro: What we are seeing is inventorytightening.

Matthew Gordon: What does tightening mean?

Brandon Munro: The sector always exists with a lot ofinventory. That’s been the case for the last 30-years. It is not helpful tolook at the absolute total amount of inventory that is calculated throughout thesector.  You need to understand wherethat inventory is held. Inventory that is held by the Russian government or theUS government or Chinese stockpiles, that is kind of interesting, but itdoesn’t dictate anything in the market, because that material is just locked upfor strategic purposes.  The relevantpart for investors and the price, is mobile inventory; what inventory isavailable either to supress demand or to be sold into the bid when price goesup. Because that is what is interesting to an investor; is that going tosuppress a price rise?

Matthew Gordon: Absolutely.

Brandon Munro: And what we have seen there is atightening. In U308, we have seen tightening, largely because if the deficitthat we have got at the moment. So even after allowing for secondary supplies,we have run a 20Mlbs deficit for the last couple of years. So that is beingdrawn down, predominantly by utilities underbuying. But what I findfascinating, as you mentioned, you have got three forms of Uranium in the nuclearfuel cycle. And for the listeners, you have got: U308, which is the minedconcentrate. That has been subjected to conversion and conversion is a servicethat is applied to the U308, that the utility pays for, that turns U308 from apowder, or yellowcake, into a gas; Uranium Hexafluoride. And that is still ahomogenous commodity because it is just UF6. From there you get enrichment,again, typically a service paid for by the utility where the Uranium that theyhave bought off a mine, then goes to enrichment, to the specifications requiredfor their particular type of reactor technology.

In the old days, that’s how it worked. The utilities wouldbuy the Uranium and they would pay for the conversion service, they would pay forthe enrichment service. But what’s happened since Fukushima, when we hadreactors come down, particularly in Germany and Japan, is inventory started tobuild up, not only in U308 but also in UF6 and in EUP; the enriched Uraniumproduct. And that has been a problem for our market because you have asubstitute ability between those three forms of nuclear power. And not only canthe utilities arbitrage between those three forms; if they don’t like the pricethey are getting in U308, then they can go to UF6 or EUP. But they can alsoignore the time criticality of planning before in the old days, they would haveto have bought their U308, two years before they needed it, because it takes alot of time to transport and move through that cycle.

Now, if they sort of mess up on the planning, well that’sokay because there was UF6 available that they could buy one year out from whenthey needed it, or EUP which they can buy 6 months out from when they need it.

And that has contributed to the utilities being able to holdoff on re-starting the contract cycle.

Back to what’s relevant today and why I am saying that thesector in the market is tightening in a very favourable way. First of all, UF6has tightened almost entirely. So I have just been to a room with people whoplan in this sector, and what happened, as you know, a couple of years ago, Covidienput the Metropolis conversion facility into care & maintenance, and cleverly,they bought all of the UF6 they could find. All of the mobile inventory theycould find in the form of UF6, they bought up.  And they did that because they had conversioncontracts. And when they closed the doors on Metropolis, they would have tocontinue delivering into those. So UF6 is very tight. Even so much so that afew months ago, we saw Uranium Participation Corp. swap out their UF6 for U308and take advantage of that arbitrage.

We’ve also seen a tightening in enrichment and that has beenexacerbated by geopolitical concerns around Iran sanction waivers, and maybe wecan come back to that. Se we are seeing a UP tightening: U308, we are alsoseeing tightening but not to the same extent, hence why we have got $25 Uranium,or $24.50 Uranium.  But if you look atwhat happens when those markets tighten, UF6, in the time frame I have described,that has gone up 400%, spot conversions. So conversion is the price of theservice, so the difference between what you pay for UF6 and what you pay forU308. 400%. And that has been a wake-up for the utilities because many of themforgot that those sorts of increases are possible.

Matthew Gordon: So that tells us something. Whatabout the enrichment component? Has that gone up?

Brandon Munro: Yes, also. Not to the same extent butit has gone up from mid-thirties, so it is measured as USD per, the SWU price,the Separative Work Unit, gone up from mid-thirties to about USD$50. So, thatis also a healthy increase.

Matthew Gordon: This is what you mean by‘behind the curtains,’ there are things going on which are indicative of amovement, or the need for a movement, relatively soon. So, why weren’t theseconversations happening at the beginning of 2019? Because the numbers werestarting to move in 2019, but they haven’t had an effect on spot, obviouslythere aren’t that many contracts being written, so how do you work out wherethe threshold is? Where is that critical threshold that these numbers need toget to. Where are the markers for investors to actually know when this marketis going to go? It feels like not too many people know what’s going on in theUranium space at the moment.

Brandon Munro: I’ll tell you all that it needs,because, as you know, I’ve been in meetings in London for the last couple ofweeks and I get asked the same question: what’s the catalyst?

You only need a sentiment switch for this market to tighten.And that sentiment switch can come from anything, so if we use the examples nowof UF6 and enrichment; in UF6, when sentiment was low, Covidien were able tobuy all the UF6 that they needed to buy, and they did that. The moment theprice started to go up, the mobile inventory disappeared.  And that is a fact in this market; there is aninverse relationship between the mobility of inventory and the price; as theprice goes up, inventory disappears. And we even saw that, talking to some ofthe traders as I have over the last couple of weeks. We even saw that in November,October, November when we started to see a bit of an increase in the Uraniumprice, it went up by 8% in a couple of weeks, and the inventory, theavailability of U308 vanished. It only started to come back when the pricesoftened again and the various parties who had it to sell figured that therewas no time value in money at that point.

Matthew Gordon: Sentiment of utility buyers?

Brandon Munro: Correct

Matthew Gordon: Nothing to do with retail, nothing to dowith institutional buying?  

Brandon Munro: So let me try to explain that a bitfurther and put some numbers on it.

So, maybe sentiment is a little bit wishy-washy, but what weare really talking about is their view of the medium-term price and what effectthat is going to have on their immediate actions, okay. So, some numbers: weare running a 20Mlbs deficit in the U308 sector at the moment, after takinginto account secondary suppliers.

So, to put some numbers on that: 2016, the sector wasknocking out about 160Mlbs of U308 production. Mined production. That’s nowcome down 25Mlbs because of care & maintenance in McArthur River, theKazakhs producing and various other supply disruption that has taken place inthe sector. Secondary supplies – all of the various forms: running at about 25Mlbsagainst a reactor burn up of 180Mlbs. Rough numbers. So, so far, there isn’tenough demand at the U308 level to put pressure on the price. So what we know, isthat there is about, instead of 180Mlbs worth of demand, because that’s theamount that’s being burnt up each year, it’s about 160Mlbs of demand. Caused bytwo things: preferential buying of UF6 and EUP over U308 and utilities wearingdown their inventories. So 20Mlbs, if I now translate that into numbers in theUS for example, in rough terms, the US nuclear fleet consumes about 50Mlbs ofUranium and they have been underbuying in the last few years by about 20% - so10Mlbs per annum.  All they need to do ismake a decision that they are going to change their policy from under-buying tofull coverage, and that’s 10Mlbs. That’s a dramatic effect on that 20Mlbs deficit.Or we could see financial plays into the marker again. In 2018, about 10Mlbswas taken out of the market by Yellowcake and UPC topping up. Again, that’s a10Mlbs swing. A swing like that, particularly if it goes up to 180Mlbs and startsto expose that supply and demand deficit in U308, that’s enough to generate avery sharp price response which will then have secondary effects in terms ofsecondary buying.

Matthew Gordon: Do you think that there will be afinancial impact from players like Yellowcake in the market? Yellowcake havegot their own issues at the moment. I don’t see any generalist funds wanting toback it – another team buying up Uranium at the moment, are you aware of any?

Brandon Munro: Yes. But it’s private. We are aware ofFamily Offices clubbing together. We are aware of banks and hedge funds. But itis not the same model as Yellowcake. Yellowcake is a buy created marketinstrument with liquidity and hold into the long term. So the other buying inthe financial market that we are starting to see is not a sequestration of thatUranium in the way that UPC and Yellowcake is.

Matthew Gordon: It is such a small market; it’s a USD$10Bnmarket, it’s nothing so the big institutions – it would surprise me if theywere to create teams to take advantage of the Uranium space.

Brandon Munro: Yes. And look; let’s face it; investorsentiment is desolate at the moment in Uranium, so for generalists to getinvolved in the commodity, we are going to need a movement in price. I don’tthink we are going see a change in investor sentiment until we see a change inprice. I don’t think there is enough potentiality visible in the market forinvestor sentiment to change price.

Matthew Gordon: Talk to me about the JCPOA please.

Brandon Munro: So Joint Co-operative Plan of Action.

Matthew Gordon: Who are all of the parties involved inthat?

Brandon Munro: So it is Iran on the one hand and thenyou have the UK, France, Russia, China and the US; so they are the co-operativeparties. Put in place in 2015 because as you know, Iran was showing signs ofbuilding a military nuclear program. The plan was designed to hold offsanctions on Iran in return for Iran complying with certain obligations.Predominantly they were obligations of maintenance and monitoring, unfetteredmonitoring of their facilities and obligations designed to go further than non-proliferationobligations that go further than everyone else, to put a big spacer betweenIran defaulting on its obligations and having the capacity to produce militarygrade Uranium.

Matthew Gordon: Before Christmas, things started gettingmore complicated; the US pulled out, plus the actions of a couple of weeks agoby the US, further complicated relationships with Iran. So, can you talk to usabout your view on the US and European, well, generally European and alliedwith Russia as well and how you see that going forward.

Brandon Munro: It’s good to step back a little bit totry and work your way through the detail in the complications here. So, theJCPOA was set up, one of the first things that the Trump administration did wasto withdraw. And they did that in a way that withdrew unilaterally. There was adiplomatic scramble by the other co-operative parties to try and keep theagreement on foot.  And what that enabledthe Trump administration to do was to re-establish a whole range of sanctionson Iran that were being held off because of their commitment to the JCPOA: oilsales, access to the US financial markets etc.  But what they didn’t do, they didn’t allow thosesanctions to extend to the provision of services and fuel to the US nuclearindustry. And there was this thing created called the ‘Sanctions Waiver’. Andthe sanctions waiver needs to be re-evaluated every 90 days. So every 90 days,the Trump administration sits down and decides if they are going to giveanother 90 day waiver or, are we going to withdraw the sanctions waiver?Importantly for the sector and for the utilities and for listeners, the nextsanctions waiver consideration date is 31st January.

Now, what happened, November 15th, Mike Pompeoannounces that the Trump administration is withdrawing the waivers in respectof Fordow enrichment facility that was being used initially under the JCPOA tocreate medical isotopes but one of the progressive breaches of the agreement,the JCPOA that Iran announced, was enrichment of civilian grade Uranium ratherthan just for medical isotopes. Now, Fordow is a tailor-made facility for theelectorate in the US, built into a mountain, real James Bind stuff. Clearly itwas set up to produce military grade enrichment; when you look at theconfiguration of the cascades and that sort of thing, so it is an ideal targetfor the Trump administration to show that they are really serious aboutthis.  December 15th comingup, the utilities become very concerned because no-one was particularly clearwho was involved in the Fordow facility and when the waiver gets lifted onDecember 15th, it could have been mayhem. Now, to understand why theutilities are concerned, half of the enrichment services provided to USutilities comes from Russia; some of it directly from TFEL and TENEX and someof it is effectively resold by other enrichment providers. And the excesscapacity in the Western world of enrichment, isn’t enough to fill that gap. Notonly that, but RosAtom, as the Russian nuclear giant, it is involved in absolutelyevery aspect of the civilian nuclear power cycle. As it turned out, TFELwithdrew from its involvement in the Fordow plant because it was providingassistance with its medical isotopes and according to them, any civilianenrichment creates contamination which makes that program impossible. So thatone sort of washed over: December 15th came and went and all was okay. So nowwe fast forward to what you were talking about with the huge escalation oftensions in Iran – a month before the next sanctions waiver. So, there is a lotof concern from US utilities, but also European utilities that if thatsanctions waiver, or the entire deal falls over, the Russian nuclear providersare going to have to make a decision; do they back Iran and continue to supportIran? And be restricted from providing a whole range of services.

Matthew Gordon: It’s not just the Russians here; you’vegot the Brits, the French, the Germans, there’s a lot of superpowers in the G7who are involved in this. G7 plus Russia. They don’t agree with the Americanstance and position - certainly not what happened two weeks ago. And I thinkthere has been a lot of posturing going on, and I don’t want to get this into apolitical conversation, I want this to be about Uranium, but the reason whyEurope hasn’t followed the US is that they think the Iran deal is a good deal.

Brandon Munro: Correct.

Matthew Gordon: It’s working and I think a lot of peoplein the US think it’s working, but it’s rather unfortunate timing, becauseagain, there is the perception, but the perception is that in an election year,going to war has traditionally been quite a good vote-winner. So, you know,that whole mess has been slightly discredited with the timing, but what impactis that going to have, if any, I’m going to bring it back to investment, okay -is what’s going on in Iran going to have an impact on the ability for equities,Uranium equities to move forward, or is this something that is actually goingto be another negative impact, another negative event in the world of Uraniumequities? 

Brandon Munro: Let me just clarify one thing before Ianswer that question, yesterday, so until very recently, all of the otherparties, ex-US, were declaring their support for the deal and doing theirupmost to keep the deal on.

Matthew Gordon: Thanksfor giving me an update, good,

Brandon Munro: Just yesterday, they invoked thedispute clause under the JCPOA.  Article36.

Matthew Gordon: What does that mean?

Brandon Munro: That basically means that there is a14-day dispute resolution and what Boris Johnson has said is that he would liketo see a new deal which he aptly named the ‘Trump Deal’.  So, I think what they have realised is thatthey need to try and get Iran to come back to the negotiating table andrenegotiate the whole JCPOA.

Matthew Gordon: So that is hot off the press.

Brandon Munro: Hot of the press. Which helps tocontain or to eliminate the sanctions exposure of the other countries.

So how that unfolds; we have got absolutely no idea. Andwhat effect that has on the sanctions waiver that is considered on the 31st,if such a thing still exists - so that has created a new layer of uncertainty.Now to go back to your question, it’s a difficult outcome to pick because itdepends, let’s just ignore the dispute that has been called for the moment, itdepends on Russia’s reaction. I think they are so dominant in the nuclearsector and it is such a profitable, effective business for them that they wouldthrow Iran under the bus, but you can’t put a significant probability on thatbecause it is so wrapped up in Russian foreign policy which has been extremelysuccessful in the Middle East.

Matthew Gordon: It has. Most people don’t understand that.

Brandon Munro: That would then, so if they weresanctioned, if Rosatom as a whole were sanctioned, that would lead to a periodof chaos in the nuclear supply chain, because they are so pervasive ineverything, particularly what the traders are doing; much of the supply of U308these days is coming from carry trades and so forth that the traders areinvolved in, but they often have so many chains of custody with those supplychains that most of the time you have got Uranium 1 in there or Rosatom inthere somewhere, and there’s a chance that it could invalidate all of those. Aswell as the effect on enrichment.

Matthew Gordon: Why is the US taking a risk onthis? It is a no-size industry, it is negligible compared to oil. Obviously,Iran is sitting on a lot of oil, again, this is a conversation for another day,50 million barrels discovered last year, new barrels discovered last year, andthis sector, geopolitically is the messiest thing I have ever seen in anyinvestment class because it is a very emotive topic, why? Why are people sowound up about it? Investors get wound up about it. Countries get wound upabout it.

Brandon Munro: Gets you and me pretty excited.

Matthew Gordon: I’m excited because I think thereare some great opportunities. I think there are some great companies justsitting here waiting for people to just get back to doing business and stuff.  For sure. Again, maybe we should talk aboutthat, it is another big topic that, that’s another geopolitical component thatI know we did talk about way back.

Brandon Munro: You asked me what effect this is goingto have for equities. So, there is a period of, if it unfolds that way, thereis a period of confusion and chaos and hard to know what equities would do.Into the medium term though, it is going to be beneficial for U308 and beneficialfor equities. Number one: it is an important reminder to the buyers in thesector, the utilities that geopolitics does matter and geopolitical risk doesplay a role. So they can’t just hoover up all the material from Kazakhstan thatthey want, at whatever price they want, they must have a diversity of supplywhich leads to a stacking in the price that they pay for Uranium.

Matthew Gordon: Because the supply chain may breakfurther down the line, they need to get certainty.

Brandon Munro: Yes.

Number two: if we see a break in the chain of custody amongstall of these trades, then it is going to push the utilities back into dealingdirectly with producers which in the medium term is a good thing fortransparency in the U308 price and it is also going to lead to more pricediscovery. Whilst the traders argue that they play a very important role in ensuringthe efficient operation of the markets and so on, where we are at the moment isthat they are playing a role in suppressing price discovery through the variousinstruments that they have got.

So positive in the medium term, unknown in the short term. Butwith any unknow, we could see a very sharp price reaction in U308 which wouldbe extremely positive in the short term.

Matthew Gordon: I think people would have argued that atthe beginning of 2019 too, wouldn’t they? So what lends you to feel that it ismore the case today than it was a year ago?

Brandon Munro: Because we are talking about the scenariowhere we have sanction waivers lifted and we have chaos in the sector.

Matthew Gordon: Weget a lot of commentary from retail investors, family officers, fund managers,CEOs of Uranium Juniors and they are talking about a return to the peaks of $130,$140 Uranium, sitting at $25 today, I’d love your view on that one. But theother thing they talk about is the speed at which that returns, the speed atwhich the share price returns and it’s a hockey stick, of course. Those aregreat stories. I don’t believe them. But they are great stories. What’s yourposition? Do you think we are going to see a repeat of the last cycle? Honestly?

Brandon Munro: Yes. I don’t think it’s realistic to expecta repeat of that degree of volatility.

Matthew Gordon: Why?

Brandon Munro: Well, when you look back at thatvolatility and I was in the sector at the time but I was working as an M and Alawyer, so we are on the M and A side; take-over defences and so forth and Ican remember, there was a lot of commentary about Uranium going to $200. And itwas a great unknown. The extent of reactor builds was an unknown. Obviously anup-side unknown; there was a nuclear renaissance, there was a huge amount goingon. It was a demand story in those days. And when there’s enough people saying Uraniumcould go to $200, as it sails through $100, it still feels like a viable buy tokeep buying it up.

And we still had some other dynamics in terms of Chinesebeing very early in their procurement cycle, they had big plans which are nowback on track, but back then they were significant. Those dynamics don’t existat the moment. Instead of being a demand story, what we’ve got today is asupply story. A lack of supply story and a lack of incentivisation. I dobelieve there will be volatility and I think the opportunity for this market toslowly balance out at the right price, I think that opportunity has slowly beendissipating over the last 12 to 24 months.

We would need price signals today, and really over the last12 months, to incentivise enough new production to create a balanced market. Soan overshoot is certainly likely but I don’t see it being likely that we willsee an overshoot $120, $130, $136 that we saw last time. It shouldn’t be partof an investor’s plans.

Matthew Gordon: Lots of companies talking about the needfor a $50, $55 spot. Just to be able to break even. Then you have got toincentivise to actually make some money, because that’s the name of thegame  

Brandon Munro: Yes.

Matthew Gordon: Whatever that number is: $65, $70. Itfeels like today, a long way away.

Brandon Munro: It feels like it.

Matthew Gordon: But it may go quickly. So you were sayingthat it may quickly go up to those sorts of numbers but then the controls inplace or moderation in the market, or a little bit more savvy investmentstrategy now compared to then, will temper that growth point? Or are you sayingthat this is a slow and steady growth there? Again, because we have seen somenumbers from various analysts which suggests that this may hit $40 by the endof next year. Which obviously doesn’t do anything for anyone. So what’s yourthoughts?

Brandon Munro: Yes, that’s right; $40 doesn’t doanything for the sector.

Matthew Gordon: It might as well be $25.

Brandon Munro: Correct – but that is exactly thepoint; in terms of fixing the supply disruption that we have got today butcoming down the barrel particularly when Kazakh production starts to taper off,it could be $25, it could be $15, it could be $40. It doesn’t incentiviseanybody.

Matthew Gordon: The Kazakhs have just announced that theyhave over-produced by 4%.

Brandon Munro: The Deputy Minister, are you referringto that announcement?

Matthew Gordon: Yes. They don’t seem to be followingtheir own guidelines, are they?

Brandon Munro: I don’t know.

Matthew Gordon: Okay.

Brandon Munro: There’s a number of statements; I didask Kazatomprom that question over the last couple of days and they didn’t knoweither.

Matthew Gordon: So where does that leave the rest of us?

Brandon Munro: What we’ve got, we have this situationwhere we need a significant escalation in the uranium price to even start toput new projects into the game, and as you say; is it going to be enough forthem to get financed and constructed and built? So the ranges that you aretalking about – I’ve got no problem with Uranium prices getting there andstaying there. And I think there is capacity for an over-shoot. I just don’tsee $136.

Matthew Gordon: What do you see?

Brandon Munro: I can see an overshoot to $90.

Matthew Gordon: Okay, sustained?

Brandon Munro: By definition it is an overshoot, sonot sustained.

Matthew Gordon: Because at the beginning of thisconversation, you talked about some of the controls in place and some of thepeople who can control the market to a degree. And I have asked this questioncontinuously over time and people say it’s impossible for any big players tocontrol the market. That may or not be the case, personally I think it is inthe interests of people like Kazatomprom, like Camaco, not to let the market gotoo crazy because no one wants 500 entrants in the market place like last timeround. At the same time, we have had conversations with CEOs, talking aboutroll ups and consolidations and so forth, listened to Rick Rule saying thereare perhaps 6 to 10 players who will run in the market. There are 50 today. Soobviously, people are expecting a lot of change in the structure of Uraniumproducers. What’s your take on what the horizon will look like? How do you seethe junior mining space playing out? Because there are like 5 biggish boys andthen there’s a bunch of others.

Brandon Munro: Well, if we talk about capacity of themarket, volatility and capacity to overshoot. I think for an investor, they have to be saying, is there investment inthe category of producible pounds in the next  cycle, or is it something that could come on in the cycle afterwards.Because if we do see an overshoot, it’s only the companies that are in aposition to benefit from that overshoot that are going to produce a superiorresult. Sure, there might be a little bit of a bubble amongst all Uraniumcompanies with an equity’s response, but at the end of the day, particularlyfor institutions and investors who need liquidity, if it is not produciblepounds, then in a sense, whatever the price is doing in the next cycle isirrelevant. Perhaps it will help their cost of capital which might mean thatthey are diluted a little bit less, but you’ve got to be able to produce poundsinto the next cycle.  As you know well,there are very few companies in that small universe of Uranium investment thatcan do that.

Matthew Gordon: To me, that is some big red flags acrossthe market. People need to understand what good looks like and what not so goodlooks like. Previously we have talked about teams who have produced and soldinto market. We think that is really important because it is a lot more complicatedthan other sectors. We have talked about the need for the asset to be of ascale; scale is really, really important here and to be able to mine economicallybecause again, the basic rules of mining still apply. Companies with a sense ofwhat the economics looks like. This gives you some cues as to whether to investin them or not.

But, you guys for instance? What’s your team’s structure?Have you got people on board who have been there and done it before, in acycle?

Brandon Munro: Absolutely.

Matthew Gordon: You have? Okay.

Brandon Munro: And for us, that has been extremelyimportant. So if you look at who we’ve got in the team. So in Namibia, ourchairman is Mike Leech. He was the Managing Director of the Rossing mine at atime when it was the largest Uranium mine in the world. But before that, he wasfor the last 15 years, he was CFO so he was involved in all of the marketingand contracting and knew everything about that, to do with Rossing, which was adominant player.

Matthew Gordon: Let’s take that; you say that, whenyou go and have conversations, sorry for swinging it back to Bannerman and I’mputting you on the spot here a bit, but I want people to understand the mindsetof the junior miner board, okay. You’ve got an experienced team, when you aretalking to – whether it be funds, I know that you have a lot of talks withpeople in China because the scale of your project would suggest that that isprobably where you are leaning but I’m sure you can tell us another time. Whatare they looking for? Is that an important factor to them? I certainly thinkthat it is, but do they?

Brandon Munro: Absolutely. Because as you say, yousay; Uranium mining is a little different and I know there’s a lot ofunderstatement in that.

Matthew Gordon: Yes.

Brandon Munro: It’s critically different. You needtwo things at a senior level: you need that understanding of Uranium; there’speople who have done it before, but you also need to know the country.

Matthew Gordon: Okay.

Brandon Munro: So we’ve got Mike Leech; so in termsof knowing the country, former President of the Chamber of Mines in Namibia andformer Chairman of the Namibian Uranium Association, the list goes in. In myopinion, he is one of the most senior mining executives in the country.

Matthew Gordon: So Namibia is known for mining. What isthe main mining output?

Brandon Munro: Uranium and Diamonds. It does have Gold,it does have Copper, Lead, etc. Mining is extremely important to Namibia. It’sa big chunk of its GDP and the majority of its foreign earnings and Uranium ishalf of that equation.

Matthew Gordon: So it is important that you get intoproduction and generating cash and employing people.

Brandon Munro: And it’s not just Mike, our MangingDirector in-country, Verner Evault, he was our manager at Rossing, he was bornNamibian, very well known in-country. Very great reputation. Dustin Garrow isour marketing advisor.

Matthew Gordon: We have interviewed him a couple of times.

Brandon Munro: Dustin sold Namibian Uranium for Paladin,he obviously knows Namibian Uranium because he has been in the industry formore than 40 years. But, he knows Namibian Uranium, he knows exactly what needsto be done to get it out of the country. We are not going to have a mishap inour first shipment and all of that stuff that can go wrong in that sector.

Matthew Gordon: I had forgotten he was involved with you guys. We like him a lot. He just talks common sense. I encourage people to watch the interview with Dustin.

Brandon Munro: And as you know, I lived in Namibiamyself for more than five years so I know the set up in Namibia.

Matthew Gordon: There’s a lot of things going on inNamibia like unemployment is quite high. You sort of look at what’s happeningin various other countries in Africa, is Namibia a really benign environment orshould people be worried about the jurisdiction?

Brandon Munro: From a living their point of view,it’s entirely benign. I lived there with my family, with my four kids for morethan five years and I never even had my car broken into. I’d liken it to livingin large parts of Australia.  Goodinfrastructure. Very strong development agenda, as you know, because of unemploymentand fiscal reasons, etc, etc. But the other thing is, because the country islargely built off diamonds and then Uranium, there’s a very strong not onlyacceptance of Uranium but respect for Uranium. You go into Swakopmund, which isthe coastal town near our project and half of the infrastructure has been builtby Rossing. People remember, appreciate and value that. And that is sodifferent to so many different Uranium mining jurisdictions. Even the littleNGOs, the interest groups that we have got there that oppose nuclear power andoppose  and Uranium mining, we let themhave their voice, I’ve been in debates with people there; it’s all veryrespectful but they don’t get any traction with local people because peoplevalue and are appreciative of what Uranium mining has done for the wholecountry.

Matthew Gordon: You are going to come back and tell usthe Bannerman story properly.

Brandon Munro: Okay. I’d love to do that.

Matthew Gordon: In the next couple of weeks, probablyonline when you are back in Oz. It’s good to see you over here. Really is –it’s always good to see you over here. Perhaps you can share some of your WNAconversations with us as well, when we talk.

Brandon Munro: Great. It’s always good to catch up. Thanks for making the time.

Matthew Gordon: I appreciate it. See you soon.

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