What It Takes To Make A Bull Market

Written by Gerardo Del Real
Posted July 24, 2018

Publisher's Note: Today, we're bringing you part two of the interview our junior mining expert and editor of Junior Mining Monthly and Junior Mining Trader, Gerardo Del Real, recently landed with president and CEO of Skyharbour Resources (TSX-V: SYH)(OTC: SYHBF), Mr. Jordan Trimble.

If you missed it, part one may be found here.

Read on to get an insider's perspective on what it will take to push uranium into an all-out bull market.

To your wealth,

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Nick Hodge
Publisher, Outsider Club

Gerardo Del Real: Jordan, I have to get your take on the overall uranium space, the multiple catalysts that you see on the horizon, and what we really need to happen before we can truly say that we are in an all-out, full-blown uranium bull market, one that I think is on the way, and that I think we're, frankly, at the early stages of, but I'd love to get your take.

Jordan Trimble: Look, we could sit here for hours talking about it, but I'll be as succinct as possible. We all know that the current price, the current spot price at $23-$24 a pound is unsustainably low. It's well below the average global cost of production, mines producing today, which is about $41-$42 a pound, and well under the price needed to incentivize any new, meaningful production to come online at current development projects. That price, around $55 to $60. $60 a pound, so almost triple from where it is currently in the spot market, is the average analyst-projected or forecasted price, long-term price for the commodity, and as we saw back 10 years ago, 2006, 2007, we saw the price spike up to over $135 a pound.

Now, will we see that again? I don't know, but I can tell you in no uncertain terms that the current price is way too low. It's one thing for the price to be low. It's another thing to finally start seeing some catalysts that could turn the market around, that can change that. And in the last, and particularly in the last three or four months, there's been some notable headlines and positive developments.

We've seen a lot of production cuts over the last year and a half between the largest producer globally, which is Kazatomprom out of Kazakhstan. Think about that. Kazakhstan produces over 40% of global primary mine supply of uranium. I mean, if you compare that to oil, for example, it's Saudi Arabia plus the U.S. plus other larger producers, so over 40% comes from Kazakhstan alone, Kazatomprom being the state-run uranium mining company there. They've announced major production cuts.

And it's not just production cuts at mines that have been operating for a long period of time. These are mines that came into production about 10, 12 years ago. They're ISR. There's talk about declining production rates, potentially, at this point, but these are some of the lowest-cost producing mines in the world, so these aren't mines that are shutting down that are high cost that are low grade. These are some of the best, lowest-cost mines in the world that are curtailing production.

So we've seen Kazakhstan announce major cuts, and actually just recently announced more. We now move on to Cameco, the world's largest publicly traded uranium company, based here in Canada. They shut down, back in February, the world's largest and highest-grade uranium mine in McArthur River. Again, I emphasize these are low-cost mines. These are not at the high end of the cost curve. Here we have the low, like the bottom quartile of the cost curve that's shutting down.

When we see that happening coupled with existing mines, operating mines that are simply running out of reserves and resources, and other mines that are still producing but the producer is able to sell into a long-term contract at a much higher price, because a lot of uranium is traded on these long-term contracts, which were priced at much higher prices back in the last bull market, as those contracts roll off, they don't have that price protection. They, too, will be forced to shut down.

To put some numbers on that, the annual demand projected for 2018 will be over 190 million pounds in the global nuclear reactor fleet. We are now going to be producing less than 135 million pounds of uranium, down from about 160, 165 million pounds a couple of years ago. That is a massive, massive cut, and I think you will see more cuts coming.

When you look at the demand side, demand has been growing steadily. Most notably, in the last 12 months, we've seen an acceleration of the Japanese restarts, and that's a big point. Post-Fukushima, it took them about five and a half, six years to restart the first three reactors, and just in the last year we've seen another six reactors come back online, for a total of nine reactors.

So we are seeing Japan coming back online, but the big growth in demand, the real narrative revolves around China and India and other parts of the developing world. They're really leading the charge on these new reactor builds, and as we see more and more reactors come on, and new Gen III reactors, which consume and require more uranium on an annual basis, we'll see that demand continue to grow as we see the supply side continue to diminish.

As the supply side continues to wane with these production cuts, curtailments, and mines that are simply running out of reserves and resources, there's going to be a supply crunch. That will drive higher prices, and as I pointed to earlier, talking about higher prices, I'm not talking 10 or 20%. I see a significant move to get that price back up to some normal range.

That's what we saw happening a couple years back when we started the company. We wanted to basically build the asset base, put the team together, have everything ready for that next bull run in uranium, and I think now, given these recent developments, whether it's on the supply side with the production cuts, the demand side growing, the Japanese restarts, and now, also, we've seen some big money come into the space in some new funds that are buying physical material, Yellow Cake out of London, Uranium Participation Corp, has continued to raise money.

That's money coming in that's betting directly on the commodity price itself, and also taking a lot of material out of the market that otherwise would be selling pressure, especially on the spot market, which is a relatively small market historically compared to the contract market. So buying those pounds, in the case of yellowcake, over 8.1 million pounds directly from the Kazak, that's well over 20% or 25% of the spot market that's essentially been accounted for in 2018, and they will likely be buying more in the years to come, so that can only be positive for the spot price going forward. And a rising spot price, when you look at how do you get exposure to that, well, the mining companies, and in particular the junior miners offer the most leverage and torque, traditionally and historically speaking.

Gerardo Del Real: Well, it's a fascinating time. Jordan, a very insightful discussion. I want to thank you so much for your time, and I'm looking forward to having you back on. Is there anything else that you'd like to share before we wrap this up here?

Jordan Trimble: No, I think that that covers it all. We've covered a lot. I'll just finish by saying really, our focus is trying to be as aggressive as we can be within means going into this next uranium bull market. We're one of only a few companies that have really survived the last five or six years of a depressed uranium market. This is not like other metals or other commodities where there's hundreds of companies to choose from, ETF, buying physical. When you're looking at getting or having some investment exposure to uranium and to the sector, you have very few options to choose from. You will see that pay dividends in a rising market as capital comes back into the space.

I think it's important to highlight the fact that all the combined publicly traded uranium mining companies... Keep in mind that nuclear power accounts for 11% of global electricity generation, so a significant amount of electricity generated globally is from nuclear. It's 20% in the U.S., and in some places, like France, it's over 70%. And the companies that mine the fuel for that electricity generation, the total combined market cap of the publicly traded companies is less than $15 billion. We've seen in the past that number well over 100-plus million, and I think, with a rising tide and an improving uranium market, we will see this re-rating amongst all the uranium mining companies.

Gerardo Del Real: Well, I've said it before, if you're not positioned, get positioned now. It's one of the most no-brainer scenarios I've seen in my trading and speculating career. Jordan, thank you so much for your time today.

Jordan Trimble: Thank you.

For the past decade, Gerardo Del Real has worked behind the scenes providing research, due diligence, and advice to large institutional players, fund managers, newsletter writers, and some of the most active high-net-worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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