Uranium One mothball another mine, page-13

Hi Radx,

My question in relation to production ramp ups is:

"Why would they?" or "Can They?"

I think there are possibly three sub-categories here:

Kazatomprom

I am trying to source the Russian Report cited by John Borshoff recently and will share if I can source it. In that report, doubt was cast over Kazatomprom's ability to maintain production at their recent levels and production could fall c. 40% by 2030. We are already seeing production falls and scuttlebut is that it may be not be as "voluntary" as the Kazakhs suggest.

Speculation is that this is due to a lack of sustaining capex and that their best assets were exploited first. Thus, remaining well fields are less productive, more costly and technically more difficult.

In addition, Kazatomprom is IPO'ing in Q4 2018 (25%) and their SOE model is likely to change in that there will now be a profit incentive/ accountability which may have been lacking previously.

Current producers

The only Western producer that is generating meaningful FCF is CCJ. They have just signalled that their flagship asset will remain closed until contract U prices reach a sufficient level that they cover AIC and a return for investors.

This means a contract price at least in the mid $40's lb and likely more.

CCJ is the only producer, that I can see, who can fund the restart of their operations from internal cash flows.

Every other producer (PEN, UUUU, URG) will require additional capital to ramp up production. This means either equity or debt.

Funders will not tip money into these mines without certainty that they will NOT fail due to falling prices. Thus, it becomes a situation whereby LT contracts will have to be written by utilities prior to any funding can be sourced to ramp up production.

This reduces the risk of an oversupply of U into the market from this source in future years.

Idled production and development plays

In this group I would include PDN, BOE, NXE, FCU, DNN, UEC (of who I follow). Like the producers they will require funding to be injected to restart operations/ develop their projects (but only much more $$).

Due to the epic bear market there is simply no way funding will be available to these guys without LT contracts in place with a large margin of safety for the funders.


When you couple these funding requirements with permitting requirements (Doug Beattie thinks NXE wont get into production by 2030) then I think a surplus of U into the market from primary mines in the next 3-5 years or before U reaches >$50 lb is very unlikely.

The sector, unlike gold miners for example, is very small and the producers have finally taken a leaf from OPEC's book and are now taking a leadership role in the market, denying product until the price reaches more realistic levels.

Others may have a different view, but apart from inventory which is already slowly being drawn down, I can't see a primary surge in supply any time soon, and as per our previous discussion, I think that Secondary Supply is going to fall materially too.

Cheers
John