Page 12 MaY 2020 aUSTRaLIa’S PaYDIRT

neWs

The global COVID-19 pandemic is shap-

ing as the catalyst for new entrants to partici-pate in future uranium supply after a decade dominated by the sec-tor’s leading producers.

Early signs are in-dicating just that with uranium surprising many as the best-performing commodity this year, up 27% since the start of January. Gold (up 16%) is the only other commodity still in positive territory.

Yellowcake prices have soared on the back of a string of major shutdowns, in-cluding the world’s largest uranium mine, Cigar Lake, which Cameco Corp has now placed on “indeterminant” care-and-maintenance, despite initial plans to suspend production for just four weeks while the company evaluated the impact of COVID-19 and the risks associated with continuing operations in a region of northern Canada where there is a large indigenous population.

Since then, the Husab and Ross-ing mines in Namibia have scaled back production due to enforced lockdowns in the uranium-rich country and leading producer KazAtomProm flagged a major supply disruption of at least 10 mlb after announcing a three-month shutdown of its operations.

Kazakhstan last year accounted for more than 42% of the world’s uranium production.

And while no shutdowns have occurred in Australia as yet, Olympic Dam’s output from the March quarter was down 18% on the previous three-month period and 30% on a year-on-year basis.

Concerns about future supply triggered positive market reactions for a throng of ASX-listed uranium players, including Bannerman Resources Ltd, Vimy Re-sources Ltd and Deep Yellow Ltd.

“What we’ve seen is a compounding news flow of production disruption and my estimates are that the total aggregat-ed production disruption can quite easily be 20 mlb out of a market that was only expected to produce 135 mlb,” Banner-man chief executive Brandon Munro told Paydirt.

“There’s certainly potential for these disruptions to run longer and harder than what we can anticipate at the moment, so there’s every chance that 20 mlb can gape open ever further. That’s what’s got traders and others worried and that’s the result that we’re seeing in the spot price.”

Munro also believes Cameco’s “care-fully chosen words” in announcing the indefinite closure of Cigar Lake are telling.

“Indeterminant we know can mean up to two years because McArthur River, then the world’s largest uranium mine, was put on to indeterminant care-and-maintenance by Cameco about two years ago – and there’s still no sign of that open-

ing up again,” he said.“Cameco flagged in that announce-

ment that things had got worse rather than better and they seemed to be posi-tioning the market for a bit of a long haul, but reassuring people that in the longer term this would all be good for uranium and therefore good for Cameco.”

Vimy managing director Mike Young is not expecting either Cameco or Kaz-AtomProm to be in a rush to resume pro-duction at any of their shuttered opera-

tions when COVID-19 restrictions are lifted.

“I think both com-panies would like to see a higher price and Cameco certainly is on record as saying that,” Young said.

“Now they’ve got the opportunity to not so

much use the COVID problem to their ad-vantage, but I think given that they’ve ac-tually shut down production and wellhead development they can basically bring it back on in their time to suit them.

“I think that this is the sustainable price rise that we’ve been looking for. It’s not just anecdotal, there is real hard evidence there.”

KazAtomProm’s decision to halt pro-duction for three months is set to impact its capacity to undertake wellhead devel-opment which is critical for in-situ recov-ery mines such as those in widespread abundance throughout Kazakhstan.

Young believes this is a crucial point being overlooked by most market com-mentators.

“Wellhead development is the same as underground mine development,” Young said. “It’s about driving your drives and establishing stopes underground. It’s expensive, it’s deep, it’s not as risky as underground development, but it is your future production, so that’s an interesting point.

“We don’t really have see-through on what it will do to their future production, but we know that there will be a future production reduction because of the cur-rent reduction in the wellhead develop-ment.”

At the time of print, the uranium spot price was nudging $US33/lb. For Deep Yellow Ltd managing director John Bor-shoff, it is nowhere near the levels re-quired to justify any restarts or new pro-duction coming online.

“When I hear people talking about the uranium price going from $US24/lb to $US28/lb, I can’t describe how uninter-esting this is to me,” Borshoff told Paydirt last month.

“Like I say to many people, what’s the difference between drowning 5m below the water or drowning 3m below the wa-

John Borshoff

Candles lit for new yellowcake party

aUSTRaLIa’S PaYDIRT MaY 2020 Page 13

ter? It’s still under water. “The real change will be when that

price breaks through into potential areas of pain for utilities. In other words, short-ages declared, fear setting in and ac-knowledgment there will be a shortage…it’s not a sector for fools.”

As the founder of Paladin Energy Ltd, Borshoff has experienced what it takes to both start up and shut down a uranium mine and he fears some in the industry are poised to make potentially fatal mistakes.

“This whole concept of the mothballed ca-pacity coming online is not as simple as people might think – you have to re-engage, you have to re-finance, teams have to be found, all sorts of aspects; they’re not just sitting there with the en-gines idling as soon as the price reaches a cer-tain level,” he said.

“Yes, there’s going to be some eager to get started, but I would say to them don’t waste sweat on getting a pro-ject to market if you’re not maximising the op-portunity for your shareholders, as will occur with the supply dynamic as it is.”

Munro said companies such as Came-co and Paladin would want to see the uranium price sustaining a level “in the high 40s” before being incentivised to restart McArthur River and Langer-Hein-rich, respectively.

He concurred with Borshoff that no ex-isting mine can be easily rebooted with a simple flick of the switch.

“It’s not a case of them, let’s say Cameco, signing a nice portfolio of con-tracts that enables it to sell all of that new McArthur River production and then start the next month,” Munro said. “Long-term contracts typically start three years from

the date of signing. “Then there’s the time waiting for those

delivery dates to come up. Even once they’ve pushed the button on McArthur River, Cameo has said it will take about 14 months to get that operation up and running again.

“The reality is there’s few pounds around the world that can actually come as new production at under $US50/lb, $US60/lb or $US70/lb, but I do think we need to see prices continue to rise significantly before there’s going to be any real incentive for new production to come on, other than a few hundred thou-sand pounds here and there.”

Both Vimy and Bannerman have com-pleted DFS reports for their respective undeveloped Mulga Rock and Etango uranium projects in Western Australia and Namibia, and would appear to be at the starting gate for any new production to potentially come online in the next few years.

Young said his company was doing a “refresh” of its DFS published more than two years ago as it prepares to take ad-vantage of the opportunity to be part of the next contracting cycle.

“Going forward I think there’s going to be a paradigm shift with respect to the utilities in terms of their security of sup-ply and that bodes well for Brandon and I because the way utilities manage their contracts, they do what’s called portfo-lio management, where they basically baseload their requirements with some bigger producers and then they basically have several tranches of other produc-ers,” Young said.

“They desperately want to see new

supply and they want to see new supply from good jurisdictions and they also re-ally encourage juniors coming into the market.

“So, what’s basically happened with COVID is it’s drastically accelerated a process that was under way, that Bran-don and I have both been on air several times discussing, and now everyone is seeing it at large and everyone is getting

on the gravy train as it were.”

Deep Yellow is pushing ahead with plans to com-plete a PFS on its Tumas project in Namibia this year despite the com-pany being somewhat restricted in what it can do due to the COVID-19 pandemic.

Borshoff has outlined a nine-month game plan for his company to stick to during the various pe-riods of lockdown and working from home.

“I don’t believe this is the new norm for working in companies like what I’m running, but we’re adopting systems for us to remain as productive as we can and I’m happy

with what we’ve got,” he said.“Work is proceeding on schedule. We

still hope to complete it [PFS] in the mid-dle of the next half, so September/Octo-ber, and our work towards that I think will be pleasantly surprising. There was a lot more in our scoping study [published in January] than one would presume be-cause of the team that we had working on it and because of the knowledge we have of both the project and the uranium sector.”

– Michael Washbourne

Mike Young

COMMODITY PRICE PERFORMANCE YEAR TO DATE

-40%

-30%

-20%

-10%

0%

10%

20%

30%+27% Uranium

+16% Gold

-11% Silver

-17% Zinc

-17% Nickel

-18% Copper

Source: Westmetall, TradeTech : 16 April 2020

Brandon Munro