In this global energy crisis and global climate crisis uranium is the new black (reports The Australian).
For Duncan Craib, CEO of listed uranium miner Boss Energy with a prize asset in South Australia, it is all systems go.
The Honeymoon mine lies 75 kilometres northwest of Broken Hill. The brownfield site is connected to the electricity grid, it has water supply and Craib plans to roll off the first yellowcake by the fourth quarter of next year as the uranium price shoots back up the charts.
Uranium miners, many with plans on ice for over a decade, are calling the start of the new cycle as supply tightens around the world.
“We want to be like the big miners BHP and Rio Tinto, they bring their mines on at the beginning of the cycle,” says Craib. “We want to be there when the prices overshoot, because as a restart project we’ve got first mover advantage. We can lock in contracts with those high prices.”
In the last week shares Boss Energy have jumped more than 15 per cent, valuing the miner at just over $800m.
In March the miner raised $125m in equity with institutional investors Paradice, First Sentier and now Ausbil all substantial shareholders on the register. Duncan Craib has just under 1 per cent.
Boss Energy is debt free and a final investment decision to get the mine up and running again landed in June. Capex required for the project will be $113m.
It is one of only four companies to hold a prized export licence from the Australian government in the highly regulated sector – the others being Rio Tinto, BHP and ERA (which is being decommissioned).
The global pivot to nuclear power this year has been remarkable, with the most dramatic example being Japan.
Rocked by the Fukashima disaster in 2011, Japan shut down its entire nuclear fleet. Yet two weeks ago Prime Minister Fumio Kishida requested that up to nine nuclear reactors come online ahead of a winter energy squeeze. Then on Wednesday he launched a green transformation panel with nuclear at the core.
The broader supply demand story over the last decade inventory levels have run down. But Craib says the uranium price has not been high enough to incentivise new project development or exploration. In the US utilities have about two years of inventory supply remaining and in Europe it is even less.
“You can’t switch a nuclear power plant on and off, you have to gradually wind these plants down,” explains Craib. “So utilities need new supply, and that low level of inventory has been forcing them to come to the market. The current price is around $US48 per pound. I wouldn’t be surprised if we see that price higher than $US50 next week.”
Covid and geopolitics have added tension. Craib says Western utilities do not want to re-enter new contracts with Russia and in Kazakhstan, the world’s largest supplier, all uranium is shipped through Russian ports. There are now desperate efforts to find new routes.
All this mean uranium buyers are looking to stable countries like Australia. And Duncan Craib is busy arranging site visits for major international buyers to stay ahead.
“Part of having that first mover advantage is dealing with strong counterparties to lower your counterparty risk,” says Craib. “Typically the contracts are between five and seven years, so it’s important that you partner up with the right counterparty.”
Buyers are also looking for credibility in suppliers. Being an industry veteran can’t hurt.
From 2008 Duncan Craib was CFO of Kalahari Minerals, which had a 43 per cent share in an ASX listed uranium business with a huge resource in Namibia.
Having sold the resource to Chinese buyers in 2012 for $2.2bn he was taken on as finance director and spent four years in Namibia managing a $2.8bn build that was commissioned in 2016. He took on Honeymoon in 2017.
Further boosting credibility, last year Boss Energy bought 1.25 million pounds of physical inventory worth about $85m to provide for working capital. “It also helps give buyers confidence to enter into contract with us, so if there any hiccups during our ramp up we can supply them with physical inventory,” says Craib.
In negotiations the game has shifted from a buyer’s market to a producer led market. Instead of fixed price contracts, producers like Boss Energy are insisting on market related contracts. They have a floor and ceiling price to protect both parties but within that band the price can rise with the market over the contract.
Craib also plans to layer contracts, with some as short as three years. “As one drops off, you bring one on. So by layering it may be that you lock in one contract at $US60 a pound, the next contract at $US65, and then at $US70.”
In recent years the incentive spot price to get new projects off the ground in Australia has been put at $US60 a pound, but Duncan Craib thinks rising inflation and cost of borrowing has pushed the incentive price up higher.
At Honeywell’s brownfield site well field construction and camp refurbishment is already underway. Recruitment too is going well. Conveniently the only two mines operating in the country, BHP and the privately owned Heathgate, are both in South Australia.
On the big work though, rising inflation has caused a rethink. Materials making up around 30 per cent of the $113m capex will be bought and delivered to site before construction and labour is mobilised.
Where Australia lags other parts of the world is in financing uranium.
This month Europe deemed that nuclear is a now a green investment, unlocking potentially billions of dollars of funding. But accessing debt finance for young Australian uranium companies remains a challenge.
“We found that no Australian bank was willing to finance the uranium mine. We had to look afar,” says Craib. “I haven’t seen anything change with the Australian banks. I think the shift that will happen is some of the Australian development projects will be able to access European finance more easily.”
Australia is warming to the uranium debate but some states still ban it altogether. To Duncan Craib this is hard to reconcile in a country that has the world’s largest uranium resource and is the third largest producer.
“We are trying to wean ourselves off fossil fuels and coal mining. Well, there is already industry here with uranium that the workforce could be channelled towards. It is a huge opportunity. I can tell you that the rest of the world wants our product.”
