A Conversation with Brandon Munro, CEO of Bannerman Resources (ASX: BMN)

Munro is back. What pearls of wisdom does he have to share for uranium investors this time around?

It's been a week of calm, contemplation and reflection in the uranium space. Uranium investors have been able to take a breath after an extremely eventful period. Munro states he has a range of supply curtailments, with Kazatomprom announcing there will be at least at 10% disruption to 2020 uranium production, which is already operating at a significant deficit. As part of his work for Bannerman Resources, Munro has seen a slight relaxation in lockdown policies in Namibia. He is just starting to see the mines get back "into a semblance of normal production." He believes Namibian uranium mines will struggle to hit their optimal numbers for several months, and this punches another big hole in the supply side of things given that Namibia is the fourth-largest uranium producer in the world. Cameco's Cigar Lake is still down indefinitely.

One thing that has happened this week is Kazatomprom making a few statements. Let's dive into them.

'Kazatomprom will NOT attempt to make up the tonnage from COVID-19 production cuts once they return to full operation.'

This cements the uranium production volume decreasing by up to 4,000 tU. This is meaningful because is turns Kazatomprom's supply deficit from a worry to a definitive concern for utility companies. These pounds aren't coming back into the market. Sorry, uranium bears.

'The production impact will affect each partner in different ways, which will vary over time.'

Kazatomprom’s disrupted production has created uncertainty in three dimensions: absolute volume, the impact of time on volume, and the impact on each partner and the relationship this has with their commitments. The immediate example that springs to mind is Cameco VS Orano VS Uranium One. If this supply disruption stretches out longer than 3 months many companies will come under immense pressure.

'The disruption is a force majeure event under their sub-soil use contracts (ie Mining Licence).'  

This takes away Kazatomprom's 'pinch point' when it comes to reducing its production levels below the 20% corridor detailed in its mining licence. Kazatomperom has a big strategic advantage over uranium producers who rely on Kazakh JVs rather than a portfolio of assets e.g. Inkai - Kazakhstan (40% Cameco: 60% Kazatomprom).

'KAP will honour its deliver commitments and will not use this as a force majeure event.'

This will support stability and will avoid utility companies getting caught short in the next 12 months. However, long-term it will allow pounds to continue to be depleted out of uranium inventories.

'KAP holds sufficient inventory to meet "lost tonnage in the short term" but will, if necessary, purchase material in the market to meet deliveries.'

This is the leveraged impacts of further delays, and things are going to get interesting if the delay stretches beyond the current expectation of three months.

'Production might be disrupted into 2021 as "ramping up the mines will be a well-planned process over several months."'

Connect the dots, uranium bulls. The picture should be becoming very clear now.

'Exploration and development work will be delayed for some time.'

Kazatomprom has been underinvesting in exploration for a while now. This just further paints the picture of uranium supply falling even lower.

'The carry trade is looking "increasingly obsolete."'

Cameco endorsed this comment earlier last week. It's an arrow to the heart of utility companies and their purchasing habits. Producers aren't accepting this any longer.

Company page: https://www.bannermanresources.com.au/

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