Special Report: Uranium Rises: A Report on the Uranium Sector Amid Coronavirus

Publisher's Note: After a long wait since the Fukushima disaster in 2011, the uranium sector is kicking back into gear. Ironic that it took another disaster — the COVID-19 outbreak in 2020 — to set in motion the catalysts for a new uranium bull market. Our in-house mining expert, Gerardo Del Real, has put together this interview in light of recent events as a primer on uranium market fundamentals. It's with one of the most plugged-in executives in the uranium space, as you'll see.

To your wealth,

Nick Hodge

Publisher, Outsider Club

(Click to Listen)

Interview Conducted April 14, 2020.

Gerardo Del Real: This is Gerardo Del Real with Outsider Club. Joining me today is the President and CEO of Skyharbour Resources (TSX-V: SYH)(OTC: SYHBF), Mr. Jordan Trimble. Jordan, how are you today?

Jordan Trimble: I'm doing good, thanks for having me.

Gerardo Del Real: You're safe, family safe, everyone's healthy?

Jordan Trimble: Everyone's doing well, all things considered. Happy to hear the same goes for you guys. But yeah, I mean it's unprecedented times, as we were talking about. And it's eerie seeing no one out on the city streets, and stores, and restaurants all boarded up, and we all hope that we can get back to some normality sooner than later.

Gerardo Del Real: The last time you and I spoke publicly was before the pandemic went global — a different world by all accounts.

And I have to say Jordan, almost every single line item that you articulated in your thesis during that interview has come to pass, and it has not been inconsequential. We have spot uranium right at the $31 level. We've agreed I think that, once we broke through that $30 barrier, that eventually we were going to get a quick run to $40, and it sure looks like it's on its way.

Before we get into Skyharbour, and the multiple news catalyst that you have here coming up shortly, I want to rehash a bit about your thesis, and why you thought a that we were in a prime spot to really be looking at the better names. And again, to your credit and your staff's credit, you have been buying in the open market, you've been eating your own cooking and putting your money where your mouth is, and now that's starting to pay off. So let's talk a bit about this new uranium bull market, because I believe it's here.

Do you believe that is the case?

Jordan Trimble: Yeah, absolutely. And I guess it is fortuitous that it was only a month ago when we spoke, and obviously there's a lot that's happened globally in the last month, and will continue to happen over the coming months, right?

And it's, there's a lot of moving parts, there's a lot at work, specifically for our sector, and we've talked about this on and offline. But when you have a commodity of metal, where 80% of global production comes from 10 producers, 2/3 of primary mine supply comes from just a handful of operating mines.

You have major supply-side risk if there's any disruption, if there's any supply-side shock. Obviously everyone knows what's happened with the pandemic, and the resulting mine closures that we've seen. Well, I'm not so dissimilar to precious metals, base metals. Uranium, we've seen some major mines shut down, but when you do have such a concentrated supply profile as you have with uranium, it hits harder.

We saw initially the announcement at Cigar Lake a few weeks back. They had suspended production there. Cigar Lake is, it accounts for 13% of global primary mine supply on an annualized basis. It's 1.3 million pounds each month. So for each month that they're shut down, that's 1.3 million pounds that Cameco has to source from somewhere.

As we know, Cameco having to buy in the open market, in the spot market to meet their contract deliveries. Initially, we were told that it was going to be a four week suspension, that's what they had guided. They just came and announced that it was going to be now shut down for an indeterminate period of time. My gut on it is, if you look at what they've done at their other large high-grade mine in the Athabasca base in McArthur River, which has been shut down now for a few years. Really the other half if you will, of their production profile.

The economic and commercial factors I think will be the main decision making procedure for the restart. I think you're going to see Cigar Lake, I don't know if you'll see it simply turn right back on, once the health concerns subside with the virus. It's highly profitable, even with the rising uranium price in the spot market, it's still much more profitable for Cameco to be buying material in the spot market, and then reselling into their higher priced, longer term contracts. And why waste the pounds in the ground? These are high quality, high margin pounds in the ground at higher uranium prices. We all believe that we're going to see higher uranium prices going forward, so it does make sense for Cameco to continue buying in material in the spot market.

And while they can sell it at higher prices in these long-term contracts, continue doing that. And Cigar Lake and McArthur are large mines, they're big operations. They produce a lot each year, but they don't, they're not 20+ year mine lives, right?

So for each passing month that they are producing and operating, you're burning through reserves. And those are, like I said, high grade, high quality pounds in the ground. So better off waiting for higher prices, and then you can look to restart. My guess is you'll probably need to see $40 uranium. So that was initially at Cigar Lake, we saw that announcement out a few weeks ago, and then now the announcement that it won't restart for an indeterminate period of time. We'll keep an eye out for that over the coming weeks and months. We then saw Namibia announced closures, and production curtailment. Their uranium mines account for about 10% of global primary mine supply.

The big announcement from the largest producer, Kazatomprom in Kazakhstan, which accounts for 40% of global primary mine supply. They announced an initial production curtailment, three months, amounting to about 10.4 million pounds of uranium. So again, these are all initial cuts, the lengths that we've seen, in particular with Cigar Lake. It could be an extended period of time. Time will tell, but pretty meaningful primary mine supply cuts, amounting to well over 30% of global supply. And that's in addition to, as we've spoken about many times, the cuts that we've seen, the production curtailment that we've seen over the last three or four years. Like I said, McArthur River, a couple of other mines in Africa and Australia that have shut down, or are coming to the end of their mine lives.

I mean that's another big thing, it hasn't just been supply cuts from the low price environment. We are seeing production at some larger mines that will be coming to an end here over the next several years. And so again, a major supply-side response that has been playing out, that's continuing to play out, and now it's been exacerbated by the pandemic. And when you look at the other side of the equation on the demand side-

Gerardo Del Real: Yep.

Jordan Trimble: I think one of the key things to note here is it's relatively inelastic. This is relatively sticky. We see reactors globally, we see reactors continue to be built. I think, as we spoke about offline, if you do see major infrastructure spend globally, that will obviously be beneficial for new nuclear reactors. They're big, big projects. We're seeing them being built in places like China and India, that need that clean, affordable, reliable electricity, and a lot of it.

So you have currently about 442 operable reactors, 54 reactors under construction, and about 440 more ordered, planned, and proposed. And these aren't the operating reactors right now, I don't think you're going to see any notable or major disruption to that. This is a baseload electricity that needs to be online.

I think you could see, if we do see, a major hit economically. The electricity demand, and decrease from this pandemic. I think you see intermittent sources from renewable and other smaller scale electricity generation. I think you see that come offline first, so I don't think you'll see any major demand side hit. And like I said, these are big, big projects. They're a big infrastructure spend, and I think you see the build out, the rollout of these reactors in places like China, and India, and other parts of the developing worlds continue.

So the demand side relative to what we're seeing on the supply-side. I think the demand side, we see continued growth there, and you have the advent of small modular reactors (SMRs). Where we're seeing now in Canada, and other parts of the world. We're seeing that the rollout of these small modular reactors, I think that that could add a lot of demand over coming years. So we're again, relatively inelastic demand side, and a supply-side that's been absolutely rough here. And any extended suspension of these mines, like Cigar, like the Kazakh mines, the mines in Africa, that'll just exacerbate that, and drive a higher price. Keep an eye out for some of the Australian mines, you got Olympic Dam, which is, even though uranium's a byproduct, it's still about 4 to 5% of global production in supply. So there is risk that additional supply comes offline, and again, forces a higher uranium price.

Gerardo Del Real: So you don't think, because I had a subscriber of Junior Mining Monthly write in, and his question was a good one. He said, "What do you say to people who believe that uranium is not a good commodity, because nuclear reactors are too expensive?" And added into the question by saying that, "There's a thought out there that they can't compete with renewable energy, particularly as utility scale battery storage systems gain traction." And I know you're talking your own book obviously, as am I, because I'm a believer in clean energy, and I believe you can't do that without uranium and nuclear reactors in a large scale fashion, but what would you say to that argument? And you touched on it in your comments there, but I just want to reiterate it, because I think it's important.

Jordan Trimble: Yeah, well look, first and foremost, that really depends where you are in the world, right?

So if you look at the levelized cost of electricity globally, it varies from region to region, from country to country, from city to city. We do know that on average, nuclear power is affordable, it's reliable, it's baseload. It's not intermittent, and we've had it for many decades. We have new, you got to keep in mind too, technology has been improving for this industry, right? We have new reactor models. I brought up SMRs for a reason, right? Smaller scale reactors that they're looking to roll out over the coming years and decades. And so much like we've seen with renewables, I think you will see a new technology in the nuclear industry bring costs down even more, and improve it. But right now, that does depend on where you are.

If you look at a place like China for example, nuclear is one of the lowest cost sources of electricity, period, end of story. Right? And I think it's also important to note, I don't think they need to be mutually exclusive.

Gerardo Del Real: Correct.

Jordan Trimble: I think there's a place for nuclear, and a place for wind, solar, geothermal, other renewables. I think they go hand in hand. But the fact is, nuclear is the only baseload source of emissions free electricity generation. And when you have places like China, where you have massive population centers, you need a lot of electricity, and it needs to be concentrated in that population center. That's where a nuclear power plant, that big model III plant that generates 1.3, 1.4 gigawatts of electricity. That, needless to say, is the optimal option for electricity generation versus massive, massive amounts of land being used for solar and wind electricity generation, right? So I'd say it depends where you are in the world, and we do need that 24/7 baseload electricity generation. We don't have the grid set up, and the storage set up right now to facilitate that with renewables, and that may take awhile.

Gerardo Del Real: The spot price is at levels that we haven't seen since March of 2016, right? We're talking over four years ago, and yet the one thing that hasn't happened yet in a meaningful way is the utility, the biggest customer coming back into the market. I'd love your take on that, Jordan. Do you see that happening sooner rather than later?

Jordan Trimble: Absolutely, I do now. I think that this last four weeks has probably rattled the cages of fuel buyers and utility companies. I mean we know that this is long overdue. We know that over 50% of existing long-term contracts expire in the next five to six years. Again, you’ve got factor in a 1 1/2 to 2 year enrichment and fuel fabrication process with that, so you can back out two years from that. And so, contract expiring two, three years out, those fuel buyers have to come back to the market now. And look, we know how this market reacts. We know one of the key drivers, one of the key things to note is how price inelastic and insensitive the fuel buyers can be. Especially when you see a shortage, when you see a tightening market like we saw in 2006 and 2007.

I think you're seeing that play out. We know that the spot market's tightening up. We know that some of the other intermediary product, the enrichment, the conversion markets are tightening up, the prices are increasing. Again, we're seeing that obviously now in the spot market, we've been seeing that with the other markets over the last few years. And that's all going to force the hands of these utility companies. I mean we've spoken at length about the various reasons why utilities haven't been contracting, and they can only kick the can down the road for so long. And now with what's happened globally and with the supply disruption, I have to imagine that, especially some of the utilities that have existing contracts expiring soon, they're going to have to be back in the market here. And that could very well be what helps drive the spot price in the short term too, as utility buying in the spot market in addition to producers that have to, like Cameco, that have to buy material in the spot market.

I think you could see quite a bit of utility buying in the spot market. And what'll happen is, we know that there's, as we've talked about, one of the reasons you haven't seen much contracting over the last several years, has been the fact that you've got a utility companies looking at a spot price to $25, mid-$20s, low $20s. And then the miner trying to negotiate a price at $45, $50, $55 a pound. And needless to say, there's been an impasse wall. As the spot price ticks up, we no longer see that impasse, right?

Gerardo Del Real: Right.

Jordan Trimble: We'll see middle ground being found, and we'll see these new contracts being signed off. And the purchasing manager for a large US, or European nuclear utility doesn't have to explain to their boss why they entered into a five, or six, or seven year contract at $50 uranium, when the spot price is half of that. They can, a lot easier to save face with a higher spot price.

So I think that as you're seeing the spot price continue to tick up, I think that that's just going to drive more buying. And as we know the, again the fuel costs of the nuclear reactor are relative to the total operating costs is relatively low. So that again, they're relatively priced insensitive. It doesn't make a huge difference to the bottom line. What matters is they have long-term secure supply of material, and so I think you see them come back to the market in droves over the next couple of years. And again, this is all just with the pandemic, and with the supply-side disruption that we've seen. I think this is going to happen sooner than later.

And then we've spoken in the past, another reason in particular in the US, that you saw a lack of contracting was the Section 232 Investigation, and the Nuclear Fuel Working Group. Well, I mean look, that's been an overhang, and it's created a lot of uncertainty, and it was what really one of the main reasons we saw prices go lower from, call it a year ago, up until recently.

But I got to think now there's going to be a new set of priorities, if you will. And again, getting back to utilities globally, including US utilities. At this point, they have to be concerned on that longterm secure supply of material, where they're going to get it. Especially with now over 50% of primary mine supply that's come offline from the previous shutdowns that we saw from 2016 to a month ago, and then obviously in the last month that the recent production curtailment as a result of the virus.

Gerardo Del Real: Jordan, we talked macro catalysts, we talked supply, we talked demand. I believe uranium is one of only a few sectors where, moving forward, we're going to be able to make a lot of money for ourselves, and for people that may be new to this space, and are looking for somewhere to allocate capital in a responsible way with a somewhat lower risk, higher reward profile. So I want to thank you for your time, and for being so generous with it. I have to allow you the floor to provide us with an update on Skyharbour Resources. I mentioned earlier, you've been buying the stock, you've been putting your money where your mouth is. Can you talk a bit about the upcoming catalyst, and why you're still bullish on your own company, which I like to see?

Jordan Trimble: Yeah, absolutely. And when we spoke last time, we talked about the program, field program that our partner, strategic partner, Orano, which is France's largest uranium mining company, had initiated at our Preston Project. So that's been underway, and they're going to follow that up with a drill program later this year. And we have, as you know, we have a dual pronged strategy with the company. First and foremost, we're out there looking to discover, make additional high-grade discoveries at our flagship project, the Moore Lake project.

And then we have as a part of our prospect generator strategy, partner companies like Orano, funding and advancing work at our other projects. So Preston, you'll see some news, and news flow out of that project over the coming months, and continue to work on that project as a part of their $8 million earn in for 70% of the project.

And then our other partner company, Azincourt, they've completed a winter drill program, with assays pending at our East Preston Project.

That's a part of a 3 1/2 million dollar earn in for 70% of that project, so keep an eye out for news flow there.

And then our main project at Moore, we've completed our winter probe drill program. So again, assays pending, very happy with what we've seen. I'll let, we'll wait for the assays to come back, and for a news flow on that, but that will be forthcoming here in short order.

We have, needless to say, plans to follow up on various targets. Both us and our partner companies, given what we've been seeing, and what we've been finding. So look out for details and news on additional programs for the remainder of the year.

I think the timing right now is, we've just spoken about what's happened at the macro level with the commodity. I think one of, one of the key points, and again, we have highlighted this in the past, but just to reemphasize this. This commodity, it's a niche market. There's not many ways investors can get exposure to uranium. You're not going out there and buying physical uranium. There's not many ETFs, and other structured products that you can buy to get direct exposure to the commodity. So the few remaining active mining companies, and we know that the sectors contracted from over 500 publicly listed companies back in 2006, 2007, to less than 40 active companies globally now. There's not many of us left, but the few that are left — the combined market capitalization is still less than $9 billion.

And so, when you have that kind of a situation where there's not many ways to get investment exposure, investors are forced to look at the mining companies right away, both large and small.

So you'll see capital come into the sector, and it'll work its way down, trickle down to the smaller cap and mid-cap names quicker than it would in gold, or other larger metal markets. And that's exciting, because we're going to be in an enviable position as we see the uranium price continue to rise. And as a smaller cap name, as a junior company, you do offer leveraged exposure and more torque to that price increase.

It's good to see the uranium price finally moving in the right direction with some momentum. And obviously the next few months will be important. We'll see what happens in terms of the production at some of these mines. But my gut’s telling me that this has been, this was the trigger, the catalyst, if you will, for the next uranium bull market.

Gerardo Del Real: We've waited for years, exciting times indeed. Please be safe out there, Jordan, and thank you again. This has been a blast.

Jordan Trimble: Thanks for having me.