Brandon Munro is the Chief Executive Officer of Bannerman Resources, an ASX-listed Uranium development company. In this interview, Brandon explains how psychology and fundamentals intersect and affect the price-per-pound of uranium and capital inflows in the uranium sector. Specifically, Brandon shares how there is a $30/lb psychological barrier that both investment funds and utilities are cognizant of. Once this barrier is broken through, Brandon says we will see a strong inflow of funds into the sector. Brandon also describes the impact of the US Department of Commerce’s Section 232 review of US uranium imports and how this has affected the market. Furthermore, he shares regarding how ASX-listed uranium equities are performing.
Brandon is also a quantitative economist and lawyer with 20 years experience as a corporate lawyer and resources executive, including serving as Bannerman’s General Manager between 2009-2011. Before joining Bannerman as CEO/Managing Director, Brandon was Managing Director of an ASX-listed company, which was focused on base metals exploration in Africa. Brandon also has extensive experience regarding the corporate social responsibility of mining companies and frequently speaks publicly concerning that topic.
Bill: You are listening to Mining Stock Education. Thanks for tuning in. I’m Bill Powers, your host. The focus of this podcast episode will be on uranium. As Rick Rule says, uranium is a “when” story, not an “if” story. Right now it’s trading around US$28.85 a pound, U.S. That’s up 25% since the summer. But the average cost of production worldwide is far above that $28.85 per pound therefore the price will eventually rise. So I asked returning guest, Brandon Monroe, the Chief Executive Officer of Bannerman Resources to come on and share with us some insights regarding the uranium market right now. Bannerman is developing a uranium project in Africa, and trades on the Australian Securities Exchange. So Brandon, thanks for joining me.
Brandon: Oh it’s a pleasure to be on again Bill. Thank you.
Bill: Well Brandon you always have very insightful things to share and you’re a deep thinker. And one of the things that you’ve shared with me regarding is the role of psychology in the uranium industry and how that intersects with the economic fundamentals of the sector. This is a thing that I haven’t heard much about. But could you share with the audience your thoughts regarding this topic?
Brandon: So your audience will be well aware Bill, on their journey to mining stock education, that psychology and fundamentals always play a role in markets. And there’s generally an intersection between the two. So, if you were to take an extreme, gold trades almost entirely on psychology. Many gold bulls would argue there’s become such a large volume of understanding of that psychology that it creates fundamentals in itself. But if you look at the industrial demand for gold, it’s actually very small. Perhaps at the other end of the spectrum, you’d look at industrial minerals, which are traded almost entirely on fundamentals, and psychology plays a very small role, and only occasionally, if there’s a supply crisis or something like that.
So uranium’s interesting because traditionally, and if we were to go back 30 years, uranium’s tendered towards the fundamentals. There was a period when demand and supply were relatively stable. Prices were relatively stable. It was almost entirely conducted on a long term contract basis. So there wasn’t a lot of variability. And then two things have happened in the recent past, which has skewered, I think, the emphasis from fundamentals to psychology. The first one was the supply crisis, starting in late 2005, that led to the uranium bull market of 2006 and 2007. And in that case we saw psychology in the form of deep concern about reliability of supply and creating all sorts of behaviors that led to some of the spectacular price rises that we had during that period…$136.00 a pound. And as your listeners know, that’s a long way from current prices at $29.00 a pound.
It’s not so much the prices that were driven by psychology because at the time, it could be argued that that was a sustainable price for uranium and if you take real prices across history, that’s by no means a peak, since commercial reactors came into existence. But what was amazing was just the trajectory at which prices increased. In a matter of a year, they went up several fold and of course, there’s many famous stories, including the one that you alluded to with Rick Rule, all vast fortunes being made in uranium equities during that period.
So that was the first psychological event that started to reshape the nature of the market. And the second one, of course, was Fukushima. What we’ve seen since then is a deep bear market that’s lasted seven years since Fukushima occurred. The uranium price the night before Fukushima was $74.00 a pound, and we’ve seen it drop as low as $18.00 a pound, even slightly below that. So the psychology today is as prevalent as it’s ever been. It’s just the opposite to 2007, in that we’re emerging from a bear market.
Bill: How do you think geopolitics plays into this psychology and the price per pound of uranium that we see on our financial apps?
Brandon: That’s a really good question Bill because on the one hand, geopolitics play a very very important role in uranium. Probably the only significant commodity where it’s greater, is gold. Because geopolitical uncertainty feeds a lot of the psychology that leads to the gold market being what it is. So, fundamentally, geopolitics is enormously important. And it’s important because it drives concerns around supply. As your listeners would be well aware, the worst thing that can possibly happen to a nuclear power plant in a commercial sense, is running out of uranium or nuclear fuel rods. And that’s what geopolitical uncertainty can do.
If you look at geopolitical factors in the uranium sector, there’s 90% of the supply roughly, of uranium, is generated by countries that either have no nuclear energy, or have a very very small proportion of nuclear energy. So that’s Kazakhstan, Australia, and Namibia, and Niger, have no nuclear energy. And Canada has a relatively modest amount of nuclear energy. So, you’ve got a fundamental disconnect between where the raw material’s being supplied from and where it’s been consumed. If you look at the big consumers of nuclear energy, well the U.S. consumes roughly a quarter of the world’s nuclear fuel, and yet produces two to three percent of it’s own needs.
Bill: And that kind of leads into what’s been talked about a lot recently, the Section 232 review here in the U.S. Talking about investor psychology and the psychology that affects this sector, how do you see what’s going on in the U.S. regarding Section 232. And could you explain what that is for listeners that don’t know? And then how is that affecting the overall sector psychologically?
Brandon: As you said, there’s a lot written about Section 232. So perhaps if I just give a brief thumbnail and listeners can jump on Google and knock themselves out in terms of learning more. Effectively, it’s the same mechanism that the Trump Administration used to impose aluminium and steel tariffs last year. It’s an investigation conducted by the Department of Commerce according to a rigid timeline. And if the Department of Commerce finds that there are unfair trade practices, the classic example being dumping, that have the potential to affect national security interests of the U.S., then it invokes an extra legislative process where the executive arm of government, the Trump Administration has very very broad power as to what they can do.
So, what’s happened in uranium is two of the uranium producers, back in January last year, petitioned the Department of Commerce to conduct a 232 investigation. And they petitioned on the basis that unfair trade practices, which were state subsidies of uranium production in Kazakhstan, Russia, and elsewhere, had negatively impacted the uranium market. And as a result, U.S. production of uranium had plunged. And as I said before, when the U.S. is producing only two to three percent of it’s own uranium, and even that production is economically threatened, then the argument is that that has created a crisis that will affect U.S. national security interests.
So, fast forward by about six months and the Department of Commerce eventually agreed to undertake the investigation. And it’ll be mid year before we’ve got any real line of sight as to the direction in which it’s going. So what it’s done to the psychology is it’s created uncertainty. And vast uncertainty because as I’m sure everyone’s well aware, President Trump has been very effective in his negotiations through relying on tactics of unpredictability. He’s under no obligation to follow the advice of the Department of Commerce. He could take 180 degree view different to what their recommendations are. And so, as long as there is a finding that there is a threat to national security. And I think there will be, given that finding was found in the case of aluminium and steel. So as long as the Department of Commerce finds that, there’s a absolutely open agenda as to what the Trump Administration could do.
So that uncertainty has affected psychology by the many instances paralyzing activity. So the term contract market has almost dried up in uranium because U.S. equities that don’t want to enter into term contracts with, for example, Canada or Australia or Namibia, only to find out that they can’t do those term contracts because of the result of Section 232. And it’s also affected and paralyzed the sector in much more subtle ways that I talked about at length through other podcasts and other information sources.
Bill: So the outcome of Section 232, whatever that may be, is there even a negative possible outcome for the sector as a whole, as a result of this?
Brandon: Interesting question because it depends your perspective at which you’re looking at the sector. If you’re an equities investor, or a Yellow Cake buying physical uranium., I don’t think there is. I don’t see any scenario coming out of Section 232 that won’t lead to more uranium activity, which will therefore lead to the uranium price going up. And really what I mean is, because the uncertainty has stalled the sector, and because the uncertainty has paralyzed large parts of the natural trading of the market, just the simple act of lifting that uncertainty in whatever form it comes, will actually lead to a price increase in uranium.
Now to talk about the structure of the market more generally and the next 15 to 20 years of how the market functions, that’s a very different question. And there’s a number of scenarios in the number of decisions that the Trump Administration could make that I think would have a very negative effect on the market. And interestingly, many of those scenarios would lead to chaos in the market, which would probably lead to upward chaos in the uranium price. So even the more unpredictable and chaotic outcomes that come out of Section 232 are likely to be an upward price catalyst for the uranium price.
Bill: As we speak Brandon, the uranium price is under $29.00, which as you know, and anybody who remotely knows anything about the uranium sector knows, is well below the average worldwide cost of production per pound. When I look at the gold sector, there’s many commentators out there saying that gold has to break through $1,375/oz, and from there it could really start to fly. Is there any price threshold that you look at when it comes to the uranium market, where you say, if it gets through this amount, fireworks could really begin to go off?
Brandon: So this is really interesting Bill, when we talk about fundamentals versus psychology, because in uranium there absolutely is today. And it’s been called the $30/lb psychological barrier. Now, it isn’t being talked a lot by equities investors because everyone, particularly North America, is totally focused on Section 232. Even to the point that I would say it’s being blindsided by Section 232 and failing to look at many of the other dynamics in the industry. But when you talk to some of the real deep thinkers in the sector who are running the specialist uranium funds for example, you realize that there has developed a psychological barrier at $30/lb that is not only holding back financial investment into the sector, but has developed so much momentum and almost fundamental star truth to it, that even the utilities are talking about it now.
So, perhaps to illustrate where psychology can turn into fundamentals, the concept of the $30/lb psychological barrier came about in about August/September, last year. And it came about because one of the specialist uranium funds that was raising money, it’s a part of a much larger investment organization, the feedback they were starting to give was, the money’s coming in, but many of our big LPs, our big investors in the broader fund, they’re saying, “Once we see uranium through $30.00, then we’re gonna have lots of money for you, so come back once it’s through $30.00.”
Now, I think the rationale for those investors was probably more to do with their own internal investment mandates than to do with anything else in the market. But it started to create a truth to it. And the truth was one of the key things that can move the uranium price at the moment, is the inflow of financial investors into the likes of Yellow Cake PLC, into the likes of Uranium Participation Corp into the likes of Uranium Trading Corp once that’s up and running, plus all of the equities investors that you’ve got: Tribeca here in Australia, L2 Capital in Brazil that’s done really well, Oclaner Asset Management out of Singapore, and many others, including Ocean Nuclear in China, which has got a huge budget for this sort of stuff.
So the truth is, the psychology is there’s a $30/lb barrier and money will come into the sector. The truth is, as that money comes into the sector, it will buy out the price of both the commodity and the equities. And then the plot thickens, and this is where it really becomes interesting. As you would probably know, and anyone who jumps on Twitter will be able to see, the uranium price had a very nice little run off a low base, so in April it was trading circa $21.00, and within about four to five months it was up 40%. And at one stage, that run just about looked unstoppable. There were 16 trading days in a row where the uranium price didn’t go down. And then in December it stalled. It stalled at about $28.00 / $29.00 in that range. Now it stalled for fundamental reasons. There was only two and a half million pounds traded on the spot market in December. And a large proportion of that was trader closing out call options. In other words, creating a financial settlement of call options by acting on behalf of the owner of those call options, exercising them, and then selling them straight into the stock market.
So, large proportion of price in elastic selling in December, and of course that would stall the uranium price. But that’s a bit that isn’t understood. What people saw, and what the psychology aspect of the market saw was a stalled uranium price. It’s struggling to get through $29.00. And that created further truth to the psychology around the $30.00 price barrier. And it’s developed to such an extent that I spent time in London with many utilities from around the world as well as many traders and others, at the World Nuclear Association working group meetings. And even some of the utilities were talking about the $30.00 barrier. Even some of the worlds producers, executives from the big uranium companies around the world were talking about the $30.00 barrier.
So it’s now become so embedded in both the psychology and the fundamentals of the sector that it will create its own truth. So I very much believe that once we see uranium go through $30.00, breech this psychological barrier, it’ll run very quickly to $35 and beyond. And what’ll then become very interesting is the interaction between that dynamic, which I would expect in the first half of this year and resolution of Section 232. So we’ve got essentially two psychological uplifting factors that could, depending on timing, in some scenarios perfectly collide to myth the overall psychological issue, which is the post Fukushima hangover in the industry.
Bill: Brandon, you’ve been around for more than one uranium cycle. In the last run up during 2007 when uranium, the price was on steroids, reaching $136.00 a pound, was there, during that run up, the psychological barrier? The $30/lb psychological barrier that you’re talking about now? Was there that fundamental and psychological barrier at a different price point then?
Brandon: Not really. There were a series of technical barriers that got broken down very quickly. The psychology was quite different. It was one of desperation. Desperation on the part of utilities. Desperation on the part of investors. There was a lot of FOMO (fear of missing out) going on. And also, desperation on the part of sovereigns, particularly those who had very big nuclear build programs, such as China and Russia.
So back in those days, I was an equities investor but I was also a mergers and acquisitions lawyer and I worked for a specialist M&A firm that, well for example, we acted on the takeover defense for Summit Resources, which was, as you might recall from your uranium history, was just a spectacular result for Summit Resources shareholders. Their company was taken out for $1.2 billion by Paladin. And the balance of Summit these days is worth, in the small number of millions. You might have noticed that Paladin just cleaned it up and acquired the balance of that share holding late last year.
So, the psychology was different because it was about that fear of not having enough uranium. And it’s in that situation that you saw Extract Resources, which has the Husab mine which is 20 kilometers from Bannerman’s Etango Project in Namibia. So, the Husab mine that Extract Resources had, that was taken out for $2.4 billion. You had a project in Tanzania, which was very early stage, taken out for one billion dollars. You had Hathor. You had many examples as the sector moved into a consolidation phase of extreme psychology in terms of the prices that were being paid for those uranium deposits.
And there’s many examples in other bull markets where you can draw those parallels. You saw that in zinc in 2007. You saw it in rare earth’s in 2009, 2010. You saw it in lithium. You saw it in cobalt. So that is a fairly typical psychology. As the price goes up and supply constraints become elevated, you see consolidation rounds that lead to extreme prices. But back to one of your earlier questions, you’ve got the geopolitical aspect here, where if a sovereign country is investing 20 or 100 billion dollars in building reactors, as a number of countries are, then what’s another billion to make sure they’ve got the uranium to fuel those reactors into the long term?
Bill: Can you give us an idea of what’s going on with the uranium equities on the Australia Securities Exchange?
Brandon: So, what we’re also seeing is deep psychological influence here rather than fundamentals. Uranium equities on the ASX have departed from uranium sentiment to the negative. We’ve seen a bit of that in North America, but more so on the ASX where we’ve had uranium sentiment improving, uranium price improving, and equities flat lining, or in many cases, decreasing. And what’s behind most of that is, if you were to look at the, let’s call them the credible uranium stocks on the ASX, there’s less than 10 of those, a majority of those have been heavily influenced by extraneous events, predominantly, a major private equity fund selling out their positions. And that’s certainly affected Bannerman. We were trading at seven and a half cents, and our 28% shareholder needed to exit and so I had to manage turning over a third of my register, and now we find ourselves at four cents.
So that happened to ourselves. It happened to a number of the other players. So if you were to have a quick glance at the performance of the uranium sector on ASX, you would say, ” Ugh, the whole sector’s underperforming, what does that say about sentiment?” But in actual fact, it’s the fundamental actions on those individual stocks that have dragged the sector down.
What we’ve also got down here, and I don’t think it’s much different on TSX, for example, is for speculative resources, it’s very much risk-off at the moment. We’re in a bear market here when it comes to exploration and development companies that’s been persisting since September. And things were very very quiet here in December and January. So, uranium equities, despite phenomenal increases in sentiment and understanding of uranium, the equities have been dragged down by the broader market as well.
Bill: And do you think that $30.00 barrier, once that’s broken through, you’ll see a steep upside movement in the share prices of uranium companies on the ASX?
Brandon: Undoubtedly. And we’ll probably start to see movement as that $30.00 looks closer. There will be investors who understand that the time to get on to that bandwagon is not when it’s hit $30.00 and everyone’s buying, it’s when it’s reached that point where you’re confident it’s gonna hit $30.00 soon. Now whether that’s $29.50 or $29.80 or $29.00 itself, investors will make that call, but there will be a point where they realize the barrier is about to be breached. And whether it takes, three days, three weeks or two months isn’t important to those investors. They’re more interested in getting that money positioned ahead of the breakout like that.
Bill: Brandon, one more question as it relates to investor psychology in the uranium sector. There is a lot of excitement online regarding the expected rise in uranium equities. When a new investor discovers resources, and discovers this little niche within the resource sector, uranium, they study the past charts of some of the equities and see how some of ’em went parabolic. Is there any cautionary advice or any advice on an exit strategy for a newer uranium investor that this is their first cycle but they saw what the last cycle did, what advice would you give someone like that?
Brandon: I think the biggest trap for uranium investors, as the cycle gathers momentum, is the need for companies to raise capital. So it’s been a long bear market. Many uranium companies out there have got projects that essentially have stalled. They’ve tried to improve them here and there, but they haven’t been able to throw the capital at it that’s required. And many of those management teams are just wringing their hands at the prospect of $40, $45, $50/lb uranium so that they can raise and finish off their PFS or finish off their DFS, or get their permitting done, etc.
So I think that’s quite an important consideration. I’m happy talking about that ’cause as you well know, Bannerman’s Etango Project is arguably the most advanced project in the world that isn’t already in production. We’ve completed our DFS several years ago. We’re permitted. We’ve got everything in place, the infrastructure’s all there. So, we’re not subject to that and we’re also very much cashed up. So the risk of dilution is not a factor to consider with a project such as Bannerman’s.
The other one is be very careful that the horse you choose to pick, in the uranium race, isn’t gonna fall lame for non-uranium price reasons. Head amongst those are things like jurisdiction, lots of examples, particularly in Australia, are fabulous deposits that are locked up politically. Management distraction from other things and other commodities that might be within the company. The list goes on and on. But you want to look carefully at what are the non uranium price risks associated with each investment. Because it would be an awful shame to accurately call the timing of the next uranium boom and be left behind because your investment is not functioning and responding and performing according to those increasing prices.
Bill: Excellent advice. For listeners that want to learn more about Brandon, you can go to miningcsr.com. On Twitter, it’s @Brandon_Munro . And Brandon’s company, of which he’s the Chief Executive Officer is Bannermanresources.com.au. Brandon, any final thoughts as we conclude here?
Brandon: Well I think in terms of where we started, which is the intersection and psychologies and fundamentals, I think what we’ve got for your listeners who are learning about the sector, is a fabulous case study that’s unfolding right before our very eyes. So even the listeners who are still on the learning phase and not ready to start dipping your toe into uranium equities, I think it’s a great sector to follow. There’s a lot of information out there now. And it’s extremely interesting and fascinating. So a great case study for the psychology and fundamentals of the market.
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