Uranium Expert Says 'Serious Issues' Face Industry

Source: Streetwise Reports 07/12/2024

Expert Dustin Garrow talks to Streetwise Reports about the past and future of the element increasingly in demand as the world's energy industry transitions to low-carbon solutions.

After the Fukushima Daiichi nuclear disaster in Japan in 2011, uranium prices dropped to US$20 to US$40 per pound for years after hitting US$136 in 2007.

But now the situation has changed drastically, according to industry expert Dustin Garrow, as the world works toward zero carbon goals, electric vehicles (EVs) and data centers for artificial intelligence (AI) gobble energy, and Russian uranium imports are banned because of the Ukraine War. Compounding the issue is that after Fukushima, many uranium mines and projects were shelved.

In January, the spot price for uranium rose to US$106.25 and has hovered in the US$90s and US$80s since then, landing at and on Wednesday it was at US$85.50 on Tuesday.

"All of a sudden, kind of unanticipated by the industry, we had governments saying we want to move toward reducing or eliminating our carbon footprint by 2050 (or) 2060" Garrow told Streetwise Reports. "We need kind of a low-carbon, no-carbon baseload power source. And that meant nuclear."

Utilities and governments are canceling plans to mothball plants, giving them licensing extensions. Even the dormant infamous Three Mile Island power plant in southcentral Pennsylvania, the site of the worst nuclear accident in U.S. history in 1979, could be switched back on. A partial reactor meltdown at the plant caused nationwide panic and led to the mothballing of many plants nationwide.

But Constellation Energy Group CEG has been conducting tests at one of the plant's reactors that was shut down in 2019, which could possibly lead to a restart that could take several years, The Washington Post reported.

"We've found the plant is in pretty good shape" Constellation Chief Executive Officer Joe Dominguez told the newspaper. "We think it is technically feasible to restart it."

When it comes to the uranium markets, Garrow said he has seen it all over his 50 years in the industry, from US$6 uranium to US$136 uranium and "all points between."

He has held numerous senior management and marketing positions with uranium production companies, including Rocky Mountain Energy, Everest Minerals, Energy Fuels Nuclear, and World Wide Minerals Ltd. He served as vice president, marketing and sales for ConverDyn, the sole provider of natural uranium conversion services in the United States. He was also the executive general manager-marketing for Paladin Energy Ltd. PALAF, a Perth, Australia-based producer of natural uranium concentrates.

Garrow now serves as chief commercial officer of Yellow Cake Plc, which was created to give pure exposure to uranium, and head of marketing for Deep Yellow Ltd., a mid-cap Australian company developing two advanced uranium projects.

The Catalyst: The Coming Energy Demand Surge

The nation's largest utility companies are warning of a coming energy demand surge from EVs and AI could be unlike anything seen since the widespread adoption of heat pumps and air conditioners pushed demand sky-high in the 20th Century, according to a June 30 piece by Spencer Kimball for CNBC.

Rystad Energy predicted that data centers and EVs alone will add 290 terrawatt hours (TWh) of new demand by 2030.

"Overall, the combined expansion of traditional and AI data centers, along with chip foundries, will increase demand cumulatively by 177 TWh from 2023 to 2030, reaching a total of 307 TWh" noted Rystad, an independent research and energy intelligence company. "Despite data centers currently representing a relatively modest portion of total electricity demand in the U.S., this marks a more than two-fold increase compared to 2023 levels, which stood at 130 TWh, highlighting the efforts of the U.S. to position itself as a global data center hub."

Rystad said the reliance on coal in the U.S. has diminished. This is expected to continue while overall power generation is expected to rise.

IG Bank noted that Morgan Stanley has estimated a nuclear renaissance could be worth US$1.5 trillion through 2050 in the form of capital investment.

'Serious Issues' Face Industry

Garrow noted that it's been a long and interesting road to this point in the commodity's journey. After World War II, there was significant overproduction of uranium, but commercial use really didn't start until the 1960s and 1970s, he said. The crossover into commercial use by the nuclear power sector into exceeding production didn't happen until about 1990, he said.

"We've had almost 35 years of inventory drawdown, and that tends to get ignored" he said.

While Russia and China hold stockpiles, mobile inventory of the important element is getting less readily available, Garrow said.

"A lot of the excess inventory lying around just isn't there anymore" he said.

Add to that the Russian invasion of Ukraine and the recent ban by the U.S. on Russian uranium, "We're seeing significantly less volume being transacted on the spot market, I contend, because it's just not there" Garrow said.

The supply side also has "serious issues" the expert said.

"Between now and the end of the decade, there aren't many greenfields developments that are 'shovel ready,'" he said. "We're not seeing a lot of the big, high-capital-cost, Athabasca-based projects moving forward real quickly."

He also said he does not see the situation easing quickly. "I'm not a mining engineer, but to restock the inventory, you'd have to overproduce in a market that's calling for increasingly larger volumes of uranium" he said. "I can't see where the inventory starts to accumulate again for the foreseeable future."

Utility companies with the largest unfilled needs the soonest are the biggest market for the near-term, he said. They're looking for not just drilling data, but the teams involved in the exploration companies. They're also concerned about the life of new mines, Garrow said.

"They really would like to see that 25- to 30-year mine life out of a new greenfields project" he said.

Garrow noted that both companies he's with now, Yellow Cake Plc. and Deep Yellow Ltd., help solve these problems. Yellow Cake offers liquid exposure to the uranium spot price with no exploration, development, or operating risk. Deep Yellow is a mid-cap developer advancing two projects.

Deep Yellow Ltd.

Deep Yellow Ltd. DYLLF is focused on developing one of the largest global inventories to establish a more than 10 million pound per annum multi-mine producer and provide security and certainty of long-term supply into the market.

The company is led by Chief Executive Officer John Borshoff, who has more than 48 years of experience in the uranium sector; and the Board is chaired by Chris Salisbury, who spent 30 years at Rio Tinto Plc and has 12 years of uranium experience.

"The company has acquired and developed a portfolio of geographically diverse exploration, early-stage and advanced uranium projects, which provide a strong development pipeline and significant growth optionality through expansion of its current uranium resource base by adding uranium 'pounds in the ground,'" it said on its website.

The company has two advanced projects: its flagship project, Tumas in Namibia, and Mulga Rock in Western Australia.

According to the company, both projects have a potential production capacity of more than 7 million pounds per annum (Mlb pa) — Tumas 3.6 Mlb pa with a potential Life of Mine (LOM) of more than 30 years, and Mulga Rock with 3.5 Mlb pa over a 15-year-plus LOM.

Deep Yellow has completed a review of the Tumas Definitive Feasibility Study (DFS), which it said "generated excellent results and strengthened the project's status as a long-life, world-class uranium operation."

It also has received the mining license for Tumas and is on track for a Final Investment Decision in the third quarter, with operations scheduling to start in 2026.

"That's kind of what we're showing to the utility market right now" said Garrow, head of marketing for the company. "And the utilities, they respond to that, they see through . . . some of the hype we see going on."

According to TipRanks, the stock is rated a Buy by analysts at two major firms, with an average target price of AU$1.91.

According to Reuters, about 4.59% of the company is owned by management and insiders, about 3.64% by strategic investors, and 38.74% by institutions. The rest is retail.

Top shareholders include Paradice Investment Management with 7.2%, Alps Advisors Inc. with 6.54%, Mirae Asset Global Investments with 5.48%, MMCAP Asset Management with 4.82%, State Street Global Advisors Australia with 3.78%, and The Vanguard Group Inc. with 2.15%, Reuters said.

The company has about 969.19 million shares outstanding, according to Reuters.

It has a market cap of AU$1.32 billion and trades in a 52-week range of AU$0.65 and AU$1.83, Google finance reported.

Yellow Cake Plc

Yellow Cake Plc YLLXF is focused on buying and holding physical uranium in North America and Western Europe, with the intent of realizing return on investment from the appreciation in the value of its holdings, according to its investors' deck.

The company also noted that in addition to owning physical uranium, it has the ability to generate value for shareholders through trading on the spot market and with long-term contracts.

According to its last quarterly operating update, the company has uranium holdings of 20.16 Mlb of U3O8 as of March 31, 2024. This increased to 21.68 Mlb on delivery of 1.53 Mlb by Kazatomprom in June 2024.

The company said it has agreed to purchase 1.53 Mlb of U3O8 from Kazatomprom at a price of US$65.50 per pound, or US$100 million in aggregate.

"The important thing is we're a sequester" said Garrow, chief commercial officer. "We don't sell, we don't trade, we don't lend, and we don't borrow. The uranium . . . sits in the account. And that's what the investors invest in, the future value of that inventory."

Analyst Mike Kozak of Cantor Fitzgerald maintained his recommendation of the stock in an updated research note on June 5.

"We are maintaining our Buy rating and GBP£9.75 target price on Yellow Cake based on 1.0x NAVPS, a GBP/USD FX rate of 1.25, and an unchanged long-term uranium price forecast of US$120/lb U3O8" Kozak wrote.

According to an analysis by Simply Wall Street in April, the company has returns on capital employed (ROCE) of 33%, based on the 12 months leading to September 2023.

"In absolute terms, that's a great return, and it's even better than the Trade Distributors industry average of 15%" the website noted.

John Foster of The Armchair Trader had praise for the company, calling it "one to watch."

"The company has been a stellar investment over the past 12 months — triple your average UK stock — and there are no signs of it slowing down with governments across the world scrambling to attain energy independence in a low-carbon way" Foster wrote.

According to Reuters, about 0.14% of the company is owned by insiders and management, about 2.56% by strategic investors, and about 45.78% by institutional. The rest is retail.

Top shareholders include MMCAP Asset Management with 10.06%, Mirae Asset Global Investments with 7.19%, Kopernik Global Investors LLC with 4.85%, Fiera Capital (UK) Ltd. with 4.74%, and Alps Advisors Inc. with 3.68%.

It has 216.86 million shares outstanding with a market cap of GBP£1.29 billion and trades in a 52-week range of GBP£4.83 and GBP£10.10, according to Google Finance.

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