Being the first is something that is very
exciting for us, because when you look at
what investors can get exposure to and value
creation can come from, this is true value
creation; taking things that have been tested,
that work, putting them together in a way
that takes a project that was good, and can
actually make it now the lowest cost mining
method, highest grade deposit. Even today,
we could make a very good return at Phoenix
and that's what gives us so much energy around
advancing the project now. Even if the commodity
price doesn't go to USD$65, the project still
goes ahead and still gets built and you still
get the developer re-rate.
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We speak today to David Cates who is the CEO
of Denison Mines, they are a Uranium player
in the Athabasca Basin with some of the highest
grade Uranium in the world. We talked to David
about his business plan and how he thinks
that's going to give him an edge over his
peers and competitors. We discussed financing
today, and financing in the future plus the
salaries that the management team are taking
down. These and lots of other topics are in
the description below. Click on the relevant
timestamp, that will take you to that part
of the video. Anyway, let's hear what David
had to say.
Hello, David. How are you, Sir?
Matt, I'm doing well. Thanks very much.
Hey, thanks for coming on the show. You one
of the big names in the space and you know,
we've been following this story. It's a very
interesting time at the moment and there are
some snippets of information coming out last
week from the DOE; it’s getting a little
bit exciting. So maybe a timely conversation.
So why don't we kick off – give us that
one-minute summary for people new to the story,
and then we'll kind of get into it.
Yeah, no doubt. And thanks very much for having
us. Denison is a Uranium development company
and we're focused on the Athabasca basin in
Northern Saskatchewan, Canada. And our flagship
asset is a 90% interest in the Wheeler River
Project. And this is the largest undeveloped
Uranium project in the Eastern portion of
the Athabasca basin. And really, our story
is focused on building on a Pre-Feasibility
Study that we put out for the project about
a year and a half ago. And that's all about
developing the super high-grade Phoenix deposit
as a very low cost ISR operation. It will
be the first ISR operation in the Athabasca
basin, and really, the potential to compete
with the lowest cost producers in the world,
like in Kazakhstan.
Yes. Fantastic. Thanks. Thanks for that summary.
Well, why don't we get into that Wheeler project
first of all, because obviously, you are in
the Athabasca basin, world famous for being,
high-grade Uranium deposits. So can you tell
us a little bit about Wheeler, how you got
into it, what the plans are?
Well, Wheeler's been in the Denison family
for a long time. Project was options from
Cameco, back in the day. And at the time,
the project had no known Uranium deposits.
And really, our team over the last 10-years
has found two high-grade Uranium deposits.
The first was Phoenix, in around 2008. Phoenix
became really well known in the last Uranium
cycle because of its super high grades. And
we've been able to delineate and increase
the size of that resource to the point where
we now have over 70Mlbs of U308, at an average
grade of over 19%. So that does make Phoenix
the highest grade, undeveloped Uranium deposit
in the world. In 2014 we found a second deposit
about three kms away from Phoenix - the Griffin
deposit. Also high grade; grades are around
2%, and you're in the range there of 65Mlbs-
70Mlbs as well.
That those two deposits were taken forward
for a PEA, or Preliminary Economic Assessment,
almost four years ago now. And that was really
designed to sort of stress test the project,
and then say like, hey, can we, do we have
enough pounds? Can we make money on this as
a co-development scenario? We did and we used
sort of a typical mining methods. Nothing
fancy about that. We used a jet boring at,
you know, Phoenix, the same as they're using
it cigar Lake. And we used underground mining
at Griffin.
Where our story, and really, this history
is important for Wheeler because we could've
left it there. Right? You know, the project
was generating a 20% pre-tax IRR at USD$44
Uranium. And you know from interviewing many
other companies, that that's something that
most people haven't done; and what I mean
is, run a price-deck at USD$44, right? But
we looked at it and said, you know, the Phoenix
deposit was actually coming out as being lower
margin than Griffin at the time using that
jet-boor mining method. And we really rejected
the validity of that because we had a 19%
average grade; highest undeveloped, highest
grade undeveloped Uranium deposit in the world.
How could it be that this was a lower margin
than a 2% basement hosted Griffin deposit.
And that's where we got to the PFS. We have
increased the level of confidence here: we
have gone from a PEA to a PFS, and we switched
mining methods at Phoenix, selecting in situ
recovery, and that's got us now positioned,
potentially as the lowest cost in the business.
But again, we want to kind of keep it simple
because there’s going to be guys watching
this who are Uranium buffs -they know everything
that there is to know. And then there is going
to be a bunch of other guys – Generalists
who are coming into this Uranium space when
they see this market pick up. So can you just
kind of break down what ISR is versus conventional
mining?
All right; so I mean certainly there's a selection
of mining methods in the Uranium space, right?
Historically you've seen open pit mines used
for shallow high-grade deposits in the Athabaska
basin. You can look at her own McLean Lake
deposits, which have been mined on that basis.
Griffin fits really well as an underground
mine. It is in a competent basement rock.
So this is dry rock in the Athabaska basin.
You have a very large geologic formation.
It's literally a basin, or a bath tub. Above
the basin you've got sandstone and you've
got a tub of water in that sandstone. Below
the tub, you've got those basement rocks,
competent things, the kind of thing you'd
want to tunnel in. So Griffin fits really
well as the basement hosted deposit, fits
really well with underground mining. It would
be very similar to Cameco's Eagle Point operation.
It's great. It's a dry mine, and actually
the grades of Griffin are high, but not too
high. So we can use very low cost underground
mining methods and we don't have to worry
about the sort of radiation exposure associated
with high-grade deposits where you're using
man-access mining type of things. So Griffin
is a good story that way. You can move to
Phoenix, and Phoenix is hosted actually in
the Athabaska sandstone. So it's not hosted
in that basement rock. It's actually in that
permeable porous sandstone. And that's what
allows us to look at using ISR mining. So
over half of the world's Uranium production
today is coming from ISR mining. And those
are all sandstone hosted deposits. And it's
really all about; can you move fluid or solution
through that host rock to be able to actually
use ISR mining. And I guess if I could just
back up one step on that, in ISR mining, it's
in-situ recovery. It's a mining method that's
mining the target mineral while it sits in
the host rock without extracting that rock.
That's what an in situ really means. And to
do it, you're using a series of wells that
drill into the ore body and around it, and
you inject the mining solution and you pump
it through a series of pump wells and it comes
out of a recovery well, where you're pulling
a solution out. And as it moves from an injection,
while the recovery, while you're actually
leaching the Uranium in-ground, and pulling
up really only what you want and not pulling
up the waste product, right? You've left the
stuff that you didn't want in the ground.
And so on surface you don't have a big processing
plant with a, you know, crushing grinding,
or you don't even have a leaching circuit.
You've done your leaching in-ground. On surface,
you really just have a plant that takes that
Uranium rich solution, drops out the Uranium,
and then re-fortifies your mining solution
and sends it back in-ground. So totally a
total spectrum of mining methods in the space
and the project that Wheeler has exposure
to has two of those different methods; being
underground at Griffin and ISR with Phoenix.
Right. So I think, I guess conventional underground
mining people understand that because you
know, it's used the world over, but you are
saying ISR is used in, what would you say?
50% of the world’s Uranium production?
Over half the world today is ISR mining.
Correct. So it's fairly conventional in that
sense; it’s a well understood technology,
there is nothing new about it. And in Canada,
is it well understood? Is it used by other
companies?
Well, in Canada, this would be the first ISR
Uranium mine. But what I would say is that,
you know, in the United States, in Australia,
Kazakhstan, ISR mining is happening all day,
every day. So people in Canada who are familiar
with the Uranium space are certainly familiar
with ISR mining.
Right. So it's well understood technically.
Okay. And I guess you've got people on the
team who've been there and done it before.
How does that work in terms of getting permissions,
permits, licenses for using ISR technology
in a country like Canada? Who hasn't seen
that before. I mean, where are you in that
process and what does it involve in fact?
And if you can help us, have you had any pushback
in terms of this lack of understanding, or
if there is lack of understanding and how
do you manage that?
No, look, that's a really relevant question.
You know, to be able to do something for the
first time anywhere, and no doubt people want
to understand if there are any sort of unique
hurdles to that. And permitting is an important
hurdle. It's actually the critical path for
the project. So maybe I'll respond with a
bit of a story on this; you know, we really
looked at this on our own before we selected
the mining method. And when we spent that
two and a half, three years going from the
PEA to the PFS, one of the questions we had
was, well, are we going to be able to use
ISR mining in the Athabasca basin? And it's
not just us and about the regulators, it's
also about the indigenous communities. You
know, will we get pushback from stakeholders
or rights and treaty rights holders that we
have in our part of the Athabasca basin. And
we did two things: a little bit risky, but
we socialized the mining methods selection
because we had more than one that we were
looking at for the PFS.
But what do you mean, socialise? What does
that mean?
Well, socialise means that we've talked to
the regulators and the indigenous communities
in advance of selecting it. And it was a bit
of a risk for us because honestly, it was
quite tough secret; the mining methods selection,
but what we said was, look, we certainly don't
want to pick a mining method where the very
first thing that the regulators are going
to say is, well I don't know about that. Or
secondly, and frankly more importantly; that
the local indigenous communities would say,
you're definitely not doing that in our backyard.
And so we actually held workshops with the
community, we showed them different mining
methods and we allowed them to give us input
on which mining method we should select. And
the thing that connected typically on ISR
mining, with the communities and the regulators
is the lack of waste. And the fact that we
have minimal surface impact, the fact that
we are not going to have lasting tails. We
will not have a tailings dump in the same
way you would at McLean Lake or at Key Lake.
And these communities are familiar with those
and they realise that these things are there
for a long time. They love the idea that ISR
mining simply doesn't have that type of impact.
So you know, we really wanted to test it before
it would be a problem to make sure that it
wasn't a problem. And the story itself for
permitting is largely an environmental impact
story. And so we launched that process almost
a year ago with the submission of a project
description that the CNSC, the Canadian Nuclear
regulator and the Ministry of Environment
in Saskatchewan will co-regulate this process.
Right now we're in the process of preparing
the next level of study to ultimately submit
an environmental impact statement. And really
this process is about understanding the impacts
of your project on the environment. And when
I look at ISR mining, we've got a great slide
in our slide deck on this, in our January
slide deck, and it talks just about how ISR
mining at Phoenix is different.
But when you really go down the list of what
are the impacts associated with this mining
method, they're really minimal. And so when
I look at our path forward, I really focus
on what is the scope of the environmental
impact associated with the project because
that's really what this process is about;
it is understanding the impacts, the way you're
going to mitigate them and the way you're
going to monitor them. And our process with
Phoenix and the ISR is really quite forward,
and we feel like it actually charts a simpler
path forward when I'm actually going through
the environmental test.
How do you get a better sense of how long
this process is going to take, and what the
potential hurdles are down the line? Because
in your deck, you talk about starting production
in 2024. I'm assuming, given funding is in
place, etc. And we can come back to that,
but it's the permitting licensing objections,
which as you say, are the long pole in the
tent here. You've just started the process.
Do you have any sense of how long that takes?
Well, yes. I mean, look, the processes is
certainly uncertain in terms of how long it
will take. Our duty, right? And what we can
control is submitting that environmental impact
statement. Then the ball does go into the
other court. The important thing is while
we're working on that EIS, we're not doing
it in a vacuum. And you can see from the story
around how we assess the mining methods, we
are not doing anything in a vacuum. We're
bringing the communities and the regulators
along with us because it is a learning curve.
What I would say though, on eliminating, you
know, some of those typical concerns around
ISR, is it is really technically driven; a
typical ISR operation will, well look - the
greatest concern, and I'll be blunt about
it, the greatest concern with an ISR operation
is that you're injecting a mining solution.
Now, look, it could be an alkaline solution.
It could be an acidic solution. We have an
acidic solution. That's how the chemistry
works. When you inject that into the ground,
people ask, well, where will it go? Now, we
will have done all sorts of work to model
a hydro-geology of that deposit so we can
follow the flow. But in a typical ISR operation,
I mean in Kazakhstan or in the United States,
the way that they will control the flow of
the mining solution, is by putting a ring
around the mining horizon of additional recovery
wells. And what they'll do is, they'll make
sure that they always suck solution into that.
Always recover a positive amount so that whatever
they're putting into the middle isn't evacuating
that ring, okay?
That's how every ISR operation in the world
will operate. What we're talking about has
that approach as a redundancy. Okay. We're
putting a 10m thick ice wall over top and
around our deposit and connecting it to those
competent basement rocks. That's our containment.
It'll be the first fixed containment, or chamber
of mining that you've ever seen in ISR. Now,
we can do it because our deposit is so high-grade
and so small. If you are dealing with typical
ISR grades: 0.05%, you'd have to freeze or
create a cap over square kilometres of ground.
We don't have that issue. We can create this
very tight dome over top of our deposits.
Our primary containment is a 10 metre thick
underground ice wall.
So tell us a bit about that, because that
seems like an engineering feat in itself,
right? So that's expensive, no doubt. But
again, how's it being done elsewhere? Have
you guys done it before?
Avid Cates: Well look, it's actually not that
expensive. And it's actually not a technical
feat. Other than that, we would be combining
the ground freezing technology with ISR mining;
that's a first. But ground freezing in the
Athabasca basin happens every day of the year
right now at McArthur River and Cigar Lake.
You know, and I'm happy to go into how that
works but I think that really a point that
has to be hammered home is that environmentally,
we will have that perimeter of extra wells.
It'll be outside the freeze dome which means
that when we go through that regulatory process,
we can explain to the regulators and any party
that's interested, that our redundancy, our
redundancy is the industry norm. That means
we're already achieving a higher standard.
Right. And that can put people at ease; even
though we are using an acidic solution, we
really have the means to control this and
eliminate those common environmental concerns.
It's interesting; you keep using a phrase
there - you said you'd be the first to do
it. You will be the first to do it. And if,
you know, if I'm sitting judging this, even
with my banking hat on or otherwise, the first
to do things worries me because it's not been
done before. It's not proven before. So, you
know, when you're doing your EIS, and indeed
apply for a year EIA and stuff, you know,
that must be a phrase which worries the regulators
too, no?
No, well, I mean, it's important for me to
be clear about that. The thing that's first
is the combination of things that have already
been done and exist and our tried tested and
true. Nothing that we're actually doing is
earth-shattering other than combining these
things. So let's look at ground freezing:
every day of the year we've got freeze holes
drilled into Athabasca sandstone, at McArthur
and Cigar, a freeze brine that’s being pumped
through it. And it's freezing the water that's
in the host rock. We have the same kind of
host rock. So freezing happens all day, every
day at two different operations in the Athabasca
basin.
ISR mining; we're not doing anything special
there, other than that we've got very high
grades, right? But injection wells, recovery
wells in sandstone. So there's nothing really
new about that. What we've done is just put
those two things together in a way that unlocks
potential that nobody's ever seen before.
And I actually think that referring to being
the first is something that's very exciting
for us because when you look at what investors
can get exposure to, value creation can come
from. This is true value creation; taking
things that have been tested, that work, putting
them together in a way that takes a project
that was good to medium, middle of the pack,
and actually make it now the lowest cost mining
method, highest grade deposit, potentially
the lowest cost Uranium producing assets in
the world. I actually think that quite exciting.
The numbers look good. The numbers look good.
So let's get back to that question: how long
does this process take? Are you going to have
to guess at that, or do you know something?
Is it two years, is it ten years?
Nobody knows how long the regulators will
take.
But is it nearer two, or is it nearer ten?
Where are you hoping?
So from our model, we modelled it; it's a
one to two year process once we've handed
the EIS over. It's definitely, look that's
going to be our job; to ensure that it's on
that type of timeline. But these processes
can take longer and I think the key is, the
less you have in terms of environmental impact,
the fewer impacts you have, the lower your
risk is that you're going to encounter a delay.
If you have a very long list of things that
the regulators of the environment or the communities
need to consider, any one of those sets a
one or two year delay. The shorter your list,
the lower your risk.
Okay. And what, what are the things that you're
spending most of your time and money on in
terms of as a percentage that concerns you
the most about getting this thing done in
that two-year timeframe?
Right, so the critical path for us to complete
that environmental impact study is finishing
our environmental assessments. So that'll
be a priority in 2020. And along with that,
you're going to have metallurgy, right? Metal.
This is a geologically driven deposit where
metallurgy is very important because we are,
of course, leaching the Uranium in-ground.
So we are running a barrage of metallurgical
tests to take our work from the PFS standard
up to a feasibility standard so that we can
get that data into our environmental assessment
process and ultimately have that inform this
environmental impact statement. Those are
our priorities.
Okay. And so it's all about Phoenix; that's
the first asset, project you want to get into
production, and Griffin comes along. I think
you're indicating in a five, five or so, six
years later? That’s the way the economics
run, okay. Can we talk about numbers? Money?
So how much money have you raised over the
period that you have been getting Phoenix
up and running?
Well, if we look at Wheeler, historical costs
that we have spent as a JV, we have spent
USD$100M + on finding those deposits and moving
them forward.
Okay. Right. And you have raised money consistently
each year. You are dipping into the market.
You did another raise in pre-December was
it? December, I think.
Yes. And look, the money we have spent matches
the project, right? So we have raised big
bucks for exploration when we have had a deposit
to delineate. We are raising a smaller rate
for exploration now because we are actually
focussing more on discovery of new ISR amenable
deposits. So we are not going as deep into
the exploration side of things, because really,
the value creation is going to come out of
developing Phoenix. And we don’t really
want to be diluting shareholders with big
exploration budgets right now, but we do want
to keep our mind and our team focused on finding
additional ISR mineral deposits, because we
do think we have an advantage on that front
and can add a lot of value.
Right, there's an exploration happening as
well. That’s good. Is part of that USD$100M,
is there a USD$24M credit facility in there
as well? By Nova Scotia bank? Or is that separate?
Yes, the USD$100M is a historical spend on
Wheeler. When you look at that USD$24 million
credit facility, so that's a letters of credit
facility, and we issue letters of credit off
of that facility to secure our reclamation
obligations at McClean lake where we have
historical mines that have been mined out.
And of course we have the McClean lake mill,
which is licensed and operating and processing
all of that ore for Cigar Lake.
Fantastic. And part of that deal was you need
to keep USD$9M in cash on deposit at all times,
and you're not having any issues with that,
that USD$9M is there.
Yes. It's restricted. It's held by Nova Scotia
on our behalf, and that covers part of that
credit facility. You got it.
Right. Okay. What is the cash position today
outside of that $9M?
Yes. So we reported Q3; cash just around USD$10
million. That will be the uncovered cash.
Right. And then the burn rate, I mean, when
does that…what I’m getting to is, are
you going to come back into market anytime
soon? And what sort of quantum are you looking
to raise at that point?
Yes, so we raised CAD$4.7M Canadian in the
fourth quarter. That would be on top of that
$10M. At the end of the day, we're a development
company, so while we do have sources of cashflow
from Uranium Participation Corps and from
our environmental business in Northern Ontario,
we've got a contract with BHP up there. We
take care of their closed Uranium mines. But
while we do generate some cashflow from that,
we're going to need more money. It's a development
company.
The key with us is that we are very fiscally
prudent. We really do plan our activities
out, and we really do have a path to finding
the right window to capital. You know, it's
an interesting thing when you have a shareholder
like Lucas Lending, you manage your dilution
carefully because at the end of the day, Lucas
Lending, and frankly myself, money that I've
put in the company we're not going to make
a return, the type of return we want to make
if we're swamping our shareholders out with
big equity raises that are poorly timed. That
said, there's always a tension between moving
the project forward and the value of bringing
that production forward and being on time.
Because every year that your start date moves,
you're effecting today's NPV. Right? So we'll
always be juggling that. We certainly don't
love equity at these values. We'd look at
other asset disposals, I would look at other
ways to raise money that aren't linked to
the share price.
Alright. Okay. So let's look at that; he had
about USD$10M in your September statement.
You're burning, you burned about USD$1M a
month prior to that. Is that right? Basically,
I'm trying to work at what you burned between
then, that statement of USD$10M, and today.
It seems to be, you know, to me, USD$3M to
USD$4M would have, you know, it's being spent
on the development activity. And again, I'm
trying to get us into where you're at today,
and I know there is probably a December statement
coming out soon, but where are you at with
cash?
Yes. So we'd say that our year-end statements
are coming out. But look, at the end of the
day when you look at the spend, we disclose
our plans for the year, they are crystal clear,
in our MD. And we're really one of the only
developers to do that. But you have to understand
that year to year plans change. And so the
scope of spending really is variable to a
certain extent, and adjustable to the cost
of capital. So I would caution against using
say, 2019 and the monthly burn as a proxy
for 2020 in the monthly burn. What I can say
is that our sort of GNA overhead costs are
in the range of CAD$5M and we generate somewhere
in the range of CAD$2M to CAD$3M in cashflow
from renting Uranium Participation Corps,
and from our environmental business.
Tell us about that. Because you know, I was
focusing on the spend, but you do have some
incomes from a couple of sources. Can you
just tell people about those?
Yes, so we’ve been the manager of Uranium
Participation Corps; this is publicly traded
company on the TSX under the symbol ‘U’
since its inception. It is a company that
holds physical Uranium at about 18M lbs U308
equivalent in inventory. And we are the administrative
and commercial agent, or manager for that
company, and so independent board of directors,
they've hired us. We have a five year contract
with UPC and we get paid a base fee plus a
variable fee that changes based on the net
asset value of UPC. So the higher the Uranium
price and the higher the value of UPC, the
more money Denison's going to make managing
that.
What do you already get from them? How much
do you get from that?
We'll earn about CAD$2M a year managing Uranium
Participation Corps. And really that's all
about leveraging our experience in the space
and our reputation, because when UPC was formed
you know, over a decade ago, it wasn't that
easy to go set up storage accounts to mine,
physical Uranium. And so that was really the
marriage. They were saying that Denison is
a known player in this space; it has these
commercial relationships with the converters
and the enrichers. And we could actually go
and set up those accounts for UPC, and use
our commercial knowledge in the Uranium space
to actually manage UPC’s inventory. So that's
UPC. If we go the environmental side, we have
a closed Uranium mine in Elliot Lake, Ontario.
It's a very famous in Canadian Uranium mining.
That district would have been the Athabasca
basin before there was an Athabasca basin
historically. And we've closed and fully reclaimed
that mine, which is a quite an accomplishment
and actually, the mine is used by the CMSC
to tour people from Canada and internationally.
They show them what a closed and fully reclaimed
mine can look like as a success story. So
with that, we have a team of people up in
Northern Ontario that take care of our site,
but we also have a contract with BHP and they've
acquired a company along the way that had
a number of closed Uranium mines in Northern
Ontario, right around our mine, and so we
offer them a care maintenance service. Like
what we're doing at our sites, but for their
sites, and we'll earn somewhere in that range
of USD$1M to USD$2M from that business segment,
not just from BHP, but from that business
segment.
So that's USD$3M to USD4M potentially, both
of those. And you talked about USD$5M is your
development budget, so that’s not bad.
Yes, so that USD$5M is a G&A overhead budget.
Okay. All right. That's the G&A component,
so there's a development budget on top of
that, is there?
Yes, so funding for the environmental assessment
or any technical work is on top of that. Exploration
as well, right: USD$5M is the keeping the
lights on costs.
Keeping the lights on costs. Okay. Okay. I
get a sense the numbers now. And can you just
very quickly, the last sort of component here
of the McClean Lake Uranium mill, what does
that mean for you? Because you've got a 22.5%
share of that. So you're not operating that.
You've just got a share in it, is that the
setup?
Yes, so the mill is operated by Orano, formerly
Areva, Uranium nuclear giant out of France,
and we have a 22.5% interest. We will argue
that it is a strategic interest because there
are very few people that actually own an interest
in an operating, well, operating or licensed
Uranium mill. If you're looking at operating
Uranium mills in the Athabasca basin, McClean
lakes is the only one that's actually operating.
If you look at licensed mills, you are restricted
now down to McClean Lake, cue Lake and Rabbit.
Those assets are closely held; basically owned
by Cameco and Orano. So Dennison really is
the other party in that mix with a tangible,
physical asset, they're right in the middle,
Right. What does that get you? You got an
eighth of this asset. They're processing 12%
of the world's global Uranium currently. What
does that allow you to do? When you start
producing, you get into your pro rata portion
to be processed through that mill, at whatever
rates? I mean, how do you negotiate your terms
on something like that?
Yes, that's a good question. Anything that
goes through the McLean mill that isn't from
the McLean project is going to require a toll
milling agreement. Toll milling agreements
generally are going to require two out of
the three parties in that joint venture to
vote for it. So having that 22.5% is an important
thing because it means that we're not another
party knocking on the door of the McClean
Lake mill to say, we'd like to develop our
mine and send our product to you. We actually
do get a vote on that toll milling agreement.
It's important to be clear though; Phoenix
for example, does not require the McLean mill.
For Phoenix, we will be building our own processing
plant on site at Wheeler, but Griffin is really
an officiary of the McLean mill because you
know, the capex of building an underground
mine and the front end of a mill is not insignificant.
And with Griffin, we've been able to really
squeeze the economics on that deposit because
we're not building a USD$1Bn mill, right?
McLean Lake, like I joke with people, but
then I could show you receipts. We basically
could show you receipts for about a billion
dollars of costs that have gone into the McLean
Lake mill. So even with the 22.5% interest
you use from that, something in the range
of over USD$200M in historical costs, or even
replacement value, probably a little higher
today for that asset. And you know, for us
it's important for Griffin, but it's also
important for life after Cigar Lake. So right
now, the mill is operating under a toll milling
agreement for the Cigar Lake joint venture
and all of those pounds that are coming from
the Cigar Lake mine are being processed at
McLean, We already used that stream of income
to bring in USD$43.5M a few years ago, where
we sold that stream to Anglo Pacific. So that's
an example of where we've already made good
use of it because we didn't have to issue
equity. Most of what we've been spending outside
of exploration dollars has come from that
financing that came out of the McLean mill.
And for us, that was 8% money, and it de-risked
what would have been a critical cashflow for
us, right?
What’s left is that there’s still a mill.
And there’s still a licensed mill. Even
after Cigar Lake produces and mines out. And
today, there’s a 6Mlbs mill, essentially,
sitting there idle. Because McLean is licensed
for 24M lbs, and it is only running 18Mlbs
from Cigar Lake in any year. So you have got
6Mlbs sitting there idle, licensed capacity.
Right, so you have, given that Griffin is
not going to be in production any time soon,
that that’s a revenue stream, potentially,
for you. When does the Anglo Pacific stream
run out?
It is mapped to the Cigar Lake mine, so it
any pounds that come from the current, defined
resources at Cigar; the ringfenced areas,
that will be optioned by that –
When is that? I don’t know enough about
it.
It has the potential to go another 20 years,
but it really depends on what happens between
Phase 1 and Phase 2, and whether Cameco is
able to make a decision.
There was also talk in the PFS about rare
earths. Is that a strong reality of being
a by-product credit or not?
That’s something we want to do a little
more work on. It’s not something that we
have got any sort of economics at this stage,
nor will we need it but it’s something that
we would definitely want to look at.
Right. But you are not going to get distracted
by it anytime soon? It’s not a big focus?
We don’t need to.
We did you need to talk about it in the EFS
then?
Well, I think it is an interesting area to
pursue from an optimisation standpoint, but
it is certainly not core to the project.
Right, okay. So, it has been an interesting
2 to 3 years in the Uranium space, how are
you faring up? How are you?
Yes, I guess that is a delicate way to put
it.
It’s been tough, right?
Yes. Look, it’s been tough. I would say
that we are blessed with the project because
if I had to wake up every morning and had
to look at a project that needed USD$65 Uranium
to be able to move forward, I think it would
be a pretty depressing place. You know, USD$65
Uranium is going to be here; it is a question
of when, and at what trajectory. So I think
that actually, we have been really blessed
and I’m actually quite excited about our
story despite the market uncertainty, and
despite the fact that we keep seeing record-low
prices. Because even today, we could make
a very good return at Phoenix, and that’s
what gives us so much energy about advancing
the project now, even if the cost of capital
is high, because we have to look at how we
will make money in this cycle. And the way
that you will truly generate a return for
your investors is by producing the pounds,
right? Or at least having visibility of those
pounds coming out of the ground. We are not
looking for the rising tide of the next exploration
company, or this company for a proper rerate
from producer to developer, and we believe
that positioning ourselves that way right
now, will give the investor maximum torque
to whatever happens with the commodity price.
But if there is this beautiful insurance policy
that says if the commodity price doesn’t
go to USD$60, the project still goes ahead
and still gets built and you still get the
developer rerate.
But let me ask a question: what do you need
to see the price get to, to incentivise you?
Because you don’t want to get into production
to break even; no one wants to do that. Whatever
that number actually turns out to be. What’s
the number that you are looking at from the
market?
Well, we break even at USD$9.
Sure. But what do you need to get going here?
I mean, what are you telling me? I would get
into production tomorrow if I get the finance,
is that what you are saying?
Yes. You’d argue that that’s a possibility.
I think for us, the biggest question will
be the cost of capital for the build, you
know, are we comfortable with the Uranium
price that’s built into our equity value,
or the cost of debt that is available and
how costly is that? And will it be cheaper
if the Uranium price is higher? I don’t
really see the Uranium price driving the overall
decision on the asset so much as it does inform
the cost of the capital. I think it can go
up, and I think it can have a good return
and the share holders will do well. The question
is, how well with the cost of capital?
Okay. So remind me about your capex cost based
on your PFS?
For Phoenix, to get the mill started, it’s
around CAD$325M.
Right.
And when we look at that, there’s a slide
that sort of gives you that cascade of production.
Yes. I’ve got it.
We have not gone and maximised our NPV, right?
We’ve actually gone and put together something
that is commercially reasonable. You know,
if we wanted the NPV to be as big as it can
be, we would have Griffin and Phoenix start
and happen at the same time. We’d spend
USD$1Bn in capex up front and we’d have
15Mlbs of production. What we’re trying
to do is make it realistic. And we have done
is, we have said, look, this makes money today,
this does not require a higher Uranium price.
Capex is low: CAD$325M. Let’s build Phoenix.
Let’s move that cashflow to fund Griffin
as a second stage, and let’s use the production
from Phoenix which doesn’t need contract
cover like money. Let’s use that production
to incentivise the utilities to sign long-term
contracts for the Griffin operation. The utility
looks at it and says, how do I sign a contract
for an asset that doesn’t exist? I need
my Uranium. The best way to sell to them is
to have Uranium production before you sell
them the contract. And that’s really what
we’re trying to do with this, right? And
that’s why the plan has been put together
this way commercially reasonably, and that’s
way the important thing: we think that raising
USD$300M is a totally different task than
raising USD$1Bn, USD$1.5Bn. And that USD$300M;
we believe is available in a moderate, to
almost today’s Uranium market. We don’t
believe it requires USD$50, USD$60 Uranium
to be able to access that kind of capital.
Can we segue off that, just quickly; there’s
a lot of talk in the market about mergers
at the moment, and you were talking there
about raising USD$1Bn, USD$1.2Bn, USD$1.5Bn,
and there’s a few names that spring to mind
there, obviously, which I think is bringing
on this talk of mergers. Do you see some of
the other players in the Athabasca basin needing
to come together to kind of get the funding
in place? Or should they be smarter like you
and say, hey, let’s bring that capex down
to something more manageable: get into production,
proof of concept, proof of route to market
and get going? Do you think their plans are
too big?
Well, look, there’s a lot in that question.
We made a purposeful decision to design the
project this way. Part of it is that if we
had brought all of that Griffin production
forward, and maxed out our MPV, it would lead
us into a path where we would have disappointment,
potentially, ahead because it is difficult
to realise on that MPV, right? You have to
be spending USD$1Bn, raising that money, building
that shaft and running an ISR operation at
the same time; it’s not realistic in our
eyes. And it’s too high risk, right? So
let’s take a more measured and sensible
path. That’s what we’ve done on that capex.
We do think a lower capex is a relevant thing
right now. In terms of M&A, if I were to take
a step back; I mean, I’d look at Cameco,
right? And Orano. These are the big boys in
the Athabasca basin. They both have declining
production profiles. Cameco has a great stable
of assets between McArthur and Cigar; these
are high-grade and large. But at the end of
the day, even they will admit, and I watch
a lot of their investor presentations and
attend many of them, but even they will admit
that the time is actually now, or yesterday,
to be advancing the next stage of mines in
the Athabasca. Now, they can’t justify it
when they have producing assets that they
are curtailing, but even they will admit that
today is actually the time to be moving these
assets forward, if we want to have that new
production fill the gap that is emerging in
our space, in that 2024 or 2025 horizon.
So, ultimately, I think that when you look
at M&A, it’s Cameco and Orano that have
to look at how they will replace production,
how will they grow to meet market needs. They
don’t have other assets that are queued
up. And McArthur is a great asset. It will
come back online, and that’s a reality but
they need pounds even beyond that, and they
admit it. And so I think there is reason to
understand that there will be an M&A slant
for many of the players in the space. I don’t
see it happening now because you have got
McArthur shit down temporarily. It would be
a very difficult thing, in my mind, for Cameco
to go out and acquire assets when they have
truly the world’s largest and highest-grade
Uranium mine parked for the time being.
Okay. Do you see yourself as a take-out target?
Are you gearing yourself for that or do you
genuinely want to get into production?
Look, I don’t see a take-out anytime soon
so I think it would be a bit risky for us
to advance or develop ourselves as a take-out
story. We really are laser-focussed on building
the project and we have built the team to
be able to do that.
Are there any other projects in the Athabasca
basin, excluding your own, which projects
in the Athabasca basin do you think you would
like to work on?
Well, I mean look, Nextgem has been hugely
successful; they have a very large, high-grade
Uranium deposit that no doubt will be a mine
at some point so it’s hard to answer that
question without talking about Arrow. It’s
a great deposit and they are a good company.
We wish them the best, and I certainly wished
that I was involved in that company before
they found Arrow, because then I’d have
a lot more money in my jeans than I do now.
They have done well. Well, talking about money
in your jeans right now; I’m looking at
your MDNA and it has been a tough few years.
I like your business model, I always like
talking about business models, and this is
an interesting one, and it’s going to be
a lot easier to raise USD$325M than perhaps
USD$1.325Bn. You know, all things being equal.
But you guys have, we talk about how remunerate
themselves and you guys have a sort of one-line
item in there: you talk about management based
on variable fees. I assume that is just a
salary, right? So you pay yourself a salary.
You don’t pay yourself through a management
firm or through a consultancy which bills
the company, it’s just the salary? You are
an employee, right?
Yes, absolutely. And you know, the best place
to look for all that stuff is the management
information circular. It is really clear.
Our salaries are pretty reasonable. They are
not aggressive. We do take a lot of our comp
in equity, and actually, what you’ll see
if you sort of look through some of those
footnotes there; it shows the last several
years. We have a structured bonus plan. It
is our executive investor bonus plan. In the
last few years, the management team has taken
almost all of their payments out of that plan
in stock or productions, keeping the cash
in the company and building our personal leverage
to the company success, right? So we try to
be very reasonable about that and recognise
that it is better that we align ourselves
with our investors rather than enrich ourselves
right now.
And the comment I was making about cash in
my jeans; I didn’t mean that personally
because you have to understand that, you know,
I’ve been with this company 12 years. I’ve
seen them go up and down in the Uranium space.
I’ve been the CEO for the last 5 years.
But this is a mature company, and so the stock
that I have built up, it’s by buying it
in the market or earning it through those
bonus payments or things like that. None of
this is penny stock. All of this is market
stock. So I am under water; like many other
investors right now, on almost everything
I’ve got. Well, definitely; on every share
I’ve bought, I’m under water right now.
And I think that’s an important part of
our story; because our team is hungry, right?
We’ve got a bunch of people on this team
at the VP level that they have stock, and
they are vested, but they are not going to
get a payday unless this project gets built
and we have this proper rerate. No-one on
our team has had this, you know, millions
of dollars on Denison at this point.
So just so I understand it; how many of the
management are on that base and variable fee
cost? Because months ending September 2019,
you are looking at CAD$1.4M, I guess, so maybe
that comes up to about USD$1.8M, USD$1.9M
for the year, how many people are sitting,
taking out of that?
Sorry, are you looking at Denison or Uranium
Participation Corps?
I’m looking at Denison at the moment.
Yes, so we don’t…I’m just pinging you
on that because we don’t disclose that base
and variable on Denison.
Okay.
We do disclose the key management but what
you’ll see is that all of the VPs are on
a structured system where there is a mix between
base salary, a long-term incentive plan which
is equity grants, RSUs or stock options and
then the short-term incentive plan which is
that bonus payment that I’m talking about.
So the entire VP team is on that. That’s
myself, our CFO, our VP Commercial, our VP
Controller, our VP Operations, our VP Exploration,
and our Council. So that’s the team that
is all being compensated on that basic scheme.
If you don’t mind, can you tell us a little
about what this year holds for you? 2020 – it’s
got to be a big year. We are reading about
US and Canada finalising the Joint Action
Plan on critical minerals, and then you’ve
got the DOE announcement from last week. And
you know, some positive noises from the likes
of Cameco etc. It feels like things are starting,
starting, I don’t know how many false dawns
you’ve had in this industry but it’s starting
to turn. What, in terms of your business plan,
are you starting to do today, and what are
the things that if you think the market does
move, you know, in the second half, like a
lot of people in this industry hope it does,
that you can quickly implement to get things
moving? I imagine, obviously permitting is
a bit of an issue because you are not quite
sure of the timeline there, are you having
conversations around the financing of this
USD$325M for instance? Have you already got
something in the bag waiting? Or is that just
dependent on permits coming through before
you can even start these conversations?
Yes. I mean, look, on the market, I’m actually
quite optimistic about 2020. We really are
starting to see road signs, if you will, that
are pointing us to an improving market; anything
that takes some of the uncertainty that we
have seen over the last 2 years from the Section
232, failed Section 232 partition in the nuclear
fuel working group in the United States, anything
that takes uncertainty out of the market is
a positive. We are seeing utilities participating
in the market more. Just starting: I mean,
I’m talking in the last month, right? These
are really important signs that we actually
might see this market start to move fundamentally
in the right direction, rather than move,
sort of by the traders and on momentum. So,
I am optimistic about 2020 for the market.
We talked about it; our story is less reliant
on the market because of the profile of Phoenix,
so our focus will be the critical path for
moving Phoenix forward; so that really is
the environmental assessment process. So you
will see us again working on environmental
assessments, metallurgy – moving that process
towards the completion of the environmental
impact statement. That will be our priority
in 2020. We sort of have three streams on
the project: so permitting and environment
are 1, technical studies and feasibility work
– that’s stream 2. That’s more variable
for us; we can choose and time that as we
want, based on that cost of capital. And then
you have stream 3, which is actually lining
up the financing. So our CFO will certainly
have that mandate of advancing this on a sort
of soft, granular basis now, so that when
we do go to raise the money for the project,
it is an arrest job, right? We’ll be lining
that up.
I guess you could add a sort of a fourth stream
which is exploration; look, we raised that
CAD$4.7M, we’re going to spend it in 2020
and our focus is actually on adding pounds
at Phoenix within the existing confines of
that freeze dome. And when we run the economics
on that, it’s a trade-off, right? You know,
like spending the money now to add pounds
that you’ll mine towards the end of your
mine life. Do you get a return on spending
that money now for delineation? We looked
at it. We did that analysis and we said that
that NPV today, of finding more pounds under
the freeze dome is quite positive. And because
we don’t have to change the extent of that
freeze dome, we’re looking for those pounds
to be really incremental. So we are going
to be working on adding pounds within the
freeze dome at Phoenix as well.
Okay, so that’s a big one. Can I just come
back to the financing with the CFO, obviously,
like you say; permitting is a big bit of that.
You’ve done a PFS. No-one is going to give
you money off the back of a PFS, there’s
going to have to be a Feasibility Study done
at some point and eventually a DFS and you
know, these things take time. Have you any
idea, can you give us any idea of when you
think those things start kicking in, when
you’re going to be in a position to move
to the Feasibility Study first of all?
Great question. For us, we’re not rushing
the Feasibility Study. Okay, it costs money
to do it, the cost of money is high. For us,
what we’re trying to do; line up the environmental
assessment and that Feasibility Study to come
together at the same time. It’s an iterative
process as you go through the environmental
assessment. And so you are designing it, your
plans are going to change at the same time.
Why mark your Feasibility Study now, only
to have to redo it. Or, basically moving them
together, have them converge. That allows
us to make our cost of capital along the way,
right? Because we are not doing anything we
don’t need to do on the Feasibility Study
until we have to do it along that prepared
time.
Okay. So the CFO has got a pass for now; he
has got a while before he needs to start having
those soft conversations, right? I’m sure
he’s busy with other things.
You know what? It’s not a pass because at
the end of the day, we need to know what elements
have the Feasibility Study need to be where,
for us to access that capital. We’re looking
at bank debt for this, right? We have such
a high operating margin that we are looking
at this as being appropriate for bank debt.
We need to know. The technical guys at Scotia
Bank will already lend to us. How do we get
them over that hurdle so that they are comfortable
with what’s in the Feasibility study. So
he’s not off the hook yet, the CFO, I give
him a hard time because I was the company
CFO. He already has a difficult role being
the CFO for the guy who used to be the CFO.
But look, he’s a pro at this and he has
been with us for the last 5 years so he knows
what we are trying to do. And it’s really
about getting the lenders on side before we
complete the Feasibility Study, so that when
we are done with the Feasibility Study, now
it’s a question of pressing the button to
say; yes, we are going to lend you that money.
Okay, but you know what I mean; it’s a case
of polishing the data that you’ve got and
getting new data in before he’s able to
firm up on that one. Your focus is EIA, let’s
get that thing over the line, get people to
buy into that. Can you answer the question
which I think you didn’t pick up on because
you didn’t answer it, which is; you are
going to need to go to market soon because
you are a development company; of course you
are, when are you going to do that and how
much do you think you are you going to raise
this time?
Well look, I think anyone who gives you a
simple answer on that is a little bit risky.
Look, we manage our business in a dynamic
industry, right? In a dynamic time. So for
us, it’s really about assessing the cost
of capital against the value of the work ahead,
right. So there is no bright line or specific
quantity about this. It’s about managing
those two. If the cost of capital becomes
very cheap, and the Uranium price is very
high, and we like the value, then we might
raise more money so we can move all of those
four streams forward very aggressively. If
it isn’t, then we will be selective about
what we do to maintain our schedule generally
while accessing a minimal amount of capital
to manage our dilutions. So there is no black
and white answer to that question.
And obviously, share price has been sliding
down since August last year, you’re in two
exchanges aren’t you, first of all: you
are in the TSX and the NYSE. Do you think
that’s just going to be a factor of whatever
is happening in the market, or what do you
think the things that you are going to say
or do that are going to change people’s
sentiment towards your stock?
Well look, you’re right; share prices in
the sector are down. I will say for the record;
we have outperformed our peers each of the
last 2 years. 2018, against our peer group,
we were down 6%, the peer group was down 26%.
2019 – we were done 16%. Nobody’s proud
of that, but our peer group was down 36%.
So we have been a good story and it’s driven
by what we are doing with the project, and
investors are paying for that. You know, like
yes, I guess whenever we talk about equity
values, it gets me a bit frustrated because
I always see us as being undervalued. But,
you know, the sector is undervalued. What
can we do about it? Well we buy stock. I’ve
been buying stock. I participated in that
USD$4.7M offering. I picked up almost half
of my salary in stock. I saw that USD$0.68c
flow-through unit as a bargain, I bought it.
I bought more stock in January, just over
[inaudible 57:41] this is all I publicly filed.
So you can do that. And ultimately, I think
our story is actually really well-positioned
for the market to rebound because we do have
news flow ahead.
You know, most developers struggle. People
go through permitting, firms that go through
permitting, they often struggle with that
part of the mining lifecycle where the story
is a bit boring and people look at, well,
what happens? I mean the project is already
great so all that can happen is that your
permitting can get delayed, or now you’re
going to have to start spending your money.
For us, we have already come through that
sort of negativity. Now it’s about building
on the story of actually building the project.
And we actually have meaningful news because
your points on ISR mining, not everyone believes,
and we are carrying out a series of test programmes
that can de-risk that. So de-risking this
process actually unlocks value. We do have
things like metallurgy, we have the permeability
results from our 2019 field programmes. These
are things where we have made some releases
along the way but the rest is to come. All
of that does give us our stock actual real
catalysts that can de-risk the project and
can actually add value and drive the share
price higher.
Brilliant. David, I appreciate you spending
your time today with us. Do stay in touch.
I think you have got yourself something good
going on there. I’d love to keep sharing
this with the viewers and subscribers to our
channel. Thank you very much.
My pleasure. Thanks very much for the interest
and for all your subscribers and their interest.
We value their interest and the opportunity
to tell the story, so thanks again.
