Discussion with Brandon Munro | Bannerman Energy (ASX:BMN) | Uranium

Yeah, thanks very much, Andrew. Great to be back.

Yeah, I'd love to. It's really exciting what we're seeing on site. So for everyone out there, the Etango uranium project is fully permitted. When we received our mining license at the end of 2023, we immediately started working on the early site works and pre-construction infrastructure. Etango will be a very large scale open pit mine with a very simple processing or milling approach. It's really three stages of crushing and then onto heap leaching and then the backend solution chemistry is very straightforward because of the nature of this ore body. So it's a Namibian style mining operation which means relatively low grade bulk tonnage with very good infrastructure around us and because of those features it does present as far as mining goes low technical risk and therefore high reliability in terms of what we expect to be able to deliver there. So we got our mining license at the end of 2023. We immediately started working on the development and the initial steps that we undertook were the preconstruction infrastructure. So we awarded the site access road which is now complete. The construction water we operate exclusively off desalination water. So, we needed to produce and install a smallish pipeline to meet all the water needs for the construction phase. That's all complete and been operational for some time. The construction power, we're lucky to be very close to grid power. So we really just needed to spur off a power line that ran alongside the license boundary, bring that onto the mining license area itself and install the various power infrastructure that's fully operational now.

And shortly after that we then awarded the bulk earthworks contract. One of the features of heap leaching is that unlike a tank leaching where you might have a crushing circuit, then you've got a milling circuit and then you've got additional equipment and additional works associated with the tank leaching. Heap leaching is quite simple. There's three stages of crushing and then it's a very large heap leach pad. The reason I share that with you and your listeners, Andrew, is that it becomes heavy on construction and light on equipment compared to a tank leaching processing circuit. And that's where the bulk earthworks just become so important. It's a 24-month contract and by awarding it early in the piece, it enabled us to start that time frame. It was the key long lead item and in many respects it's really the backbone on which the remainder of the project must be built. Now this is all really relevant because the approach that we've taken is to adopt a stagegated approach to the preconstruction, the early works and ultimately the development and construction proper of this project. And that is a little bit different to a more conventional approach where you'd receive your various licenses and permits. Then you go out for finance. Then once you've got the whole lot either in the bank or able to be accessed, then you would start on the construction. We've seen a market opportunity here where we believe our corporate strategy would certainly be enhanced and shareholder value would be enhanced by adopting this strong walking start and this commencement of all of the preconstruction and early stage construction works so that when we are ready to finance we're not starting at the beginning and we've got a very well advanced construction project that we can then take into full-scale development.

Yeah, it's great that you mentioned Etango 8 in that context because that's probably a good opportunity to just set out what the very broad Etango mine will look like and then we can come back to your question about what's the near-term construction profile. Etango 8 is really the initial phase one development of a very large Etango ore body. Though when I say large, our resource is more than 200 million pounds, well above that number. We have measured and indicated of more than 150 million pounds and in a previous development scenario, really a single stage development scenario, we had a mining reserve of 130 million pounds. So it is an enormous ore body. It's how we like to roll in Namibia. The Rössing ore body has continuously mined for more than 50 years and still has some time to go and we would expect Etango to be quite similar, a multi-decade mine. Now much like Rössing, we have an initial development plan which is Etango 8. So Rössing at one stage the largest uranium mine in the world, the largest continually running uranium mine in the world. When that started in 1976, that had an initial 16-year mine life. And as I just said, it's continued now into well beyond 50 years. Our initial mine life is described as Etango 8. And that is a 15-year mine life at 8 million tons per annum throughput through the processing circuit. Hence the eight. And that will produce 3.5 million pounds. We will have the ability to go into a phase two if we choose to which is an expansion of this mine. And that would take it from 8 million tons to 16 million tons. We would effectively just double the circuit and obviously increase the mining activities. And that's all fully designed. So we've designed the entire site allowing area and allowing for needing to double that circuit. That would take us from 3.5 million pounds to 6.7 million pounds. And we currently anticipate that we're likely to bring on that expansion pounds about year five. So we would already be in production. We'd be reliably producing and selling and delivering uranium around the world. It would be of course a low-risk expansion because it's simply an expansion of an existing asset that's already producing and producing well. And we would have had the opportunity to really understand the circuit and the equipment and make decisions around whether duplicating is in fact the best outcome or perhaps if we wanted to scale up or change certain things to optimize debottlenecking opportunities and so on. But the key here is that we're in the initial development which is to produce 3.5 million pounds and then we've got a very viable alternative which is to either continue beyond the 15, 16 years at that 3.5 million pounds or at a number of points we could make the decision to reinvest in an additional circuit and increase that capacity to 6.7 million pounds. So Andrew, I thought it was worth just putting that out there particularly for your audience who might not already be familiar with it and Bannerman.

So where are we at now with this initial Etango 8 development? As I said, we were awarded the mining license at the end of 2023 and immediately started on early site works and early construction works. The overall timetable in our definitive feasibility study is about 33 months and we're well into that period of the bulk earthworks contract that I mentioned previously. That was a 24-month contract and we're roughly a third of our way into that. So you might think about it in terms of between 6 and 12 months into that 33-month construction period. Now because of the way that we are bringing this development on, we call it the stagegated approach because we aren't fully financed at this point in time and we don't want to be fully financed until the market, the uranium market is presenting in a firmer way and showing us incentive prices that we're comfortable with and we think represent proper value. We are developing this one contract at a time, you might say. I referred to some contracts that we outlined previously. The site access road, the construction water, construction power, bulk earthworks. We've recently awarded the heap leach drainage contract. So what that means is a contractor now has the responsibility for on our site mining and then crushing aggregate. So rock that will then form an 800 mil or 2.5 ft drainage layer that will be over the entire heap pad. Now that's a big contract. The heap leach pad, the 10 cells that will be our heap leaching pad measures 300 m wide by 1,000 m long. What's that Andrew? Is that 1,000 foot by 3,000 foot? So, it's a really big area, particularly when you're talking about a depth of 2.5 ft or 800 mm. So, that's a big contract and that's now underway. We've also awarded the first phase of the concreting contract and that's to do the concrete work associated with, for example, the primary crusher and some of the longer items, longer lead contracting work. And we shortly will award the permanent water pipeline. And that's a 35 km pipeline. Now the approach has been the board assesses the next contract to award. What are the benefits for that? How much is capital? Are we comfortable with committing that capital in the context of our current cash reserves? Does that still give us a large degree of corporate flexibility? And what are the benefits we get from that? So bulk earthworks, that was an easy decision for us. We had about $100 million in the bank. The bulk earthworks was even over the 24 months well less than a third of that. It would give us the capacity to stay on time, build the framework or the backbone for this whole project over the next 24 months. And it would produce the range of benefits that you said before in terms of demonstrating that we're going into this project, that we are going towards mining for the local stakeholders, for utilities and others and that's the stage gated approach. There are contracts where we just don't need to do them yet and therefore we don't want to consume unnecessary cash balance that might reduce our flexibility which therefore reduces the different options that we would have for the final financing and investment decision. And I think finally to put that in context over the last four or five quarters we've generally maintained a level of commitments to this construction of about 25 million Australian dollars. And that's recently increased from 25 to just shy of 50 million Australian dollars. But in the context where our cash and liquid assets stands above 120 or 125 million Australian dollars. So we're very careful to keep a large cash buffer there. A lot of flexibility to make sure that we can move forward.

Now I did promise that I'd return to your question Andrew which was about timing and the process itself. I gave that introductory comment because whilst we do have obviously very well and detailed construction plan and that was set out in the definitive feasibility study and then optimized in the front-end engineering and design process. How we stick to that plan prior to final investment decision will very much depend on those numerous contract by contract decisions that the board makes with this stagegated approach. So at the moment we're on track to be commissioning and ramping up in 2028 and achieving full run rate in other words our full production levels in 2029. And as I say, the expansion would be likely to follow about five years after that, that additional expansion capacity. But corporate flexibility is really important to us. And an aspect of that flexibility is making sure that we don't make a rod for our own back by making promises or assurances or even setting rigid targets in the market as to exactly when we will be in production. The message to the investor market, but also the message to the uranium sector and the utilities is well, show us that you need those pounds in 2028 and 2029. And the way that they need to do that is to show that via incentive prices. And we are in an improving environment, but perhaps we're not quite there yet.

Well let's talk about that in two forms Andrew. There's the people that we've brought on as Bannerman employees where obviously we're making a strong and ongoing commitment to those people and expecting that back and then there's the contractor workforce which is now really expanding as we ramp up all of this activity on site. So perhaps to dispatch with the contractor workforce first. We've got almost 300 people on site, contractors working. There's a huge amount of activity. It's really very gratifying to go there and just see how much activity is taking place, how well they're doing the work. We recently announced 16 consecutive years lost time injury free. And that's not far from unheard of in any mining industry around the world. I said that in a conference during the week and there were literally gasps from the audience amongst the uranium miners when they digested what that really means. So 300 contractors on site, between 60 and 70 full-time engineers in Johannesburg doing the detailed design. Now of course that is a liability financial commitment that's all built into those numbers I gave you before. So all of that activity is encompassed by a commitment to ongoing construction that at this stage represents about 50 million Australian dollars in the context of cash and liquid assets well over 120. So even though that sounds like a really big headcount, it doesn't actually reduce our corporate flexibility. It just keeps moving things forward. Now that's where the balancing act is because whilst we want to stay as flexible as we can and ensure that we have the time to remain patient if that's what's required for longer, we also recognize that a project like this ultimately the shareholder value from here to the next five or years or beyond is about our execution. How well do we deliver this project? How well do we manage execution risk? And associated with that of course is how effective is our corporate strategy and all of the associated steps that we need to take now to deliver the project and manage that execution risk. We need a superb team and I'm very proud of the team that we have so far managed to attract.

I think it all starts with Gavin Chamberlain. He's our CEO. Andrew, I think the first time we met in person was probably 2016. And some of your audience would know that in those days I was the CEO. And I'm pretty proud of the job that I did for those first eight years. But I and the board was under no illusions that with a legal and finance background, I was not the person to lead this company into construction. Shareholders would be expected to take too big a risk with the delivery of the project and the management of the execution risk to have someone like with my background as good a job as I might have done. I don't have the background and the skills and the experience to lead a company through this phase and that was well recognized and fortunately we were able to recruit an absolute star in that department in Gavin Chamberlain and I was lucky enough because of the circumstances of the company to be able to move into the executive chair role where I could still deliver on the aspects of my previous role that I was well suited for such as communications, investor relations, governance, strategy, and so forth. Now, a little bit on Gavin because I know you know him, but for the rest of the audience who might not, he's been involved in infrastructure and mining projects in southern Africa for more than 30 years. Very strong commercial basis. He's not only been a project builder, he's been even an MD of contracting companies, he's worked on the owners team as well. So, he's got a broad understanding of all of the bases that we need here. To give you an idea of the type of experience and the high quality experience, a highly relevant example is he was the project director who delivered the Husab uranium mine in Namibia. Still the world, still Africa's largest uranium mine at that stage it was the largest single resources development on the continent of Africa and very relevant for us because it's in Namibia, it's uranium and in many respects there's some similarities between the type of development that Husab is and Etango so a good analog. So Gavin's come in and just because of the deep experience and respect that he has in the sector but also the way he operates it's a really very very good cultural fit with the type of company that we've been intent on creating and that attracts talent. So passion breeds passion. Talent attracts talent. A strong mission and purpose attracts people who have accomplished a lot in their career and are focused on a strong mission and purpose and might not get too caught up in the fact that we're still a sub-billion dollar company. I suppose that's a way of trying to help your audience understand that we're punching well above our weight in the executives and the project team that we've been able to attract to Bannerman.

So when I run through that for Steve Hurley, he's our CFO. He's come from a background of both small and large companies. And when I say large, he was the global financial controller for BHP Iron Ore, sat on their strategy and leadership committee. Did some amazing things within that organization that really gave him a very very strong operational finance background that he's now able to deploy. So Steve is operating very deeply within competence when it comes to delivering the finance aspects, the operational aspects, the enterprise planning aspects and all of those project delivery work streams that come under the CFO or the chief financial officer team. Now, he's happy to be doing that because he's delighted to be in the uranium sector. He loves what we do. And the fact that this is one of the smallest projects that he's worked on or certainly compared to his BHP career, it just doesn't come into it because he's doing it for the right reasons. Now, the same can be said for August Gyokova who is our VP market strategy in London. Matt Hogan who's recently joined us as VP corporate development. Jeff Pipe who is our owners team project manager and all of the various executives that are in there plus our board of course. So we've got predominantly a team in Namibia, just over a dozen people there including our owners team. We've got a finance team that sits in Perth, Western Australia, where we need to manage the corporate governance and associated head company finance that interacts with the stock exchange. And Gavin Chamberlain, our CEO, helpfully for us, sits in Cape Town where he's in the continent, daily flights to site and able to better execute that project delivery than if we had a CEO who was Australian-based.

Thanks Andrew. Yeah, it was really important for us and as you say, it's only a small bite and it's a good chance to share with your listeners why we would do it now and why we would take a small bite and I'd acknowledge that there has been some concern out there amongst the investor community as to are we moving too early does this mean that the current contract levels are indicative of you know what we would be happy with across the portfolio have we sold out there's been a whole range of reactions to this both positive but also with concern. So this is a really good discussion topic to be able to unpack. So first of all if I can go to the position that Bannerman's in right now which is we're a single asset developer of a new greenfields mine. As a matter of fact there's only four greenfields mines of any scale that are ready to be developed right now. One of which is experiencing a few difficulties in Niger, another one in Namibia as you well know and then another in Mauritania. And whilst they all might be called shovel ready where ourselves and the Dasa mine in Niger are the two that have commenced certain levels of construction. Now the thing with utilities is they're naturally quite a conservative group of companies and fuel buyers are like that as well and their reason for being ultimately is they need to secure supply. So they don't like taking chances. We decided that some time ago that our contracting strategy would have a few phases but the first phase was really a proof of concept. It was about ensuring that first of all, we had the internal capability to go from shaking hands with the utility and ultimately executing a fully formed long-term contract, but also demonstrate to the industry and financing community and the investing community that we had the external validation that's only generated at the end of this very arduous process of proving to these very large utilities that we've got what it takes in a huge number of different areas to deliver the uranium that provides them with that security of supply and not many people who haven't worked in this industry just can grasp how big a task that is and how big an achievement it is to sign and announce your first contracts. So let's start go back to the internal capability. So what does that mean? Well, we appointed Augusta over two years ago and she's come with a really deep industry experience, but that's how long it takes for her to systematically work her way through all of the details associated with understanding not the mining of uranium. We've got a big teams who do that, but to understand the delivery and the sales of the uranium. So these are questions that might be as simple as transport and insurance. It might be relationships with converters, what's required to open converter accounts and then a host of aspects about understanding the precise nature of our product and what it is about our uranium that would be attractive and therefore of the highest value to certain types of utility fuel buyers. Then there's the whole contracting piece. So our chief legal counsel Melvin Yo has been working with US counsel for well over a year. It is a complex aspect of the business. These contracts are very large value. They're high consequence and you can't just march in from outside the industry and hope to understand not only what's written in the black and white but also the range of conventions in this industry as you're negotiating with utilities. What can you suggest that's normal? What can you suggest that's unusual but not unheard of? And where do you cross that line where you're suggesting terms that are just so far outside the industry norm that they're regarded as radical amongst these conservative fuel buyers. So that's a process. There's a lot of capability that needs to be developed inside an organization to be able to get there with those contracts. And we needed to make sure that we had that capability. We didn't want to find ourselves entering an intense period of contracting and find ourselves bumbling along or messing it up. That would be a disaster. And you could easily see a contracting phase come and go without a first-time developer adequately participating or even participating at all if they hadn't already been through the live firing and proven to our board and ourselves that we've got what it takes to be able to do all of this internally. So that is a big tick. Then the second aspect is that external validation. So we did disclose in our announcement that it's top tier Fortune 500 US utilities. So what you can interpret from that is that it's two of really the four biggest utilities in the US and any of those four is a huge achievement and because this was all about the first phase of our contracting where it was centered on internal capability and external validation. Of course the validation we needed from the type of utilities who would provide that validation in other words the biggest and the most discerning. So these types of utilities, they have external consultants who do due diligence. They come to site. They put you through extensive ESG questionnaires. They do other forms of auditing. And just to be able to have a discussion with them means that you've already passed through a number of gates in their process. And then of course, as I said, they need to be confident that you're able to deliver. And so they like to meet the team and have multiple discussions at all different sorts of levels. Now the point is that now that we've announced that contract, not only even though this is a small bite, not only could we go back to those utilities and suggest that as the market starts to pick up, would they like to have another bite. But for other utilities both in the US and outside the US, they realize that we've come out the other end of that arduous process and therefore they've got a great deal more confidence when it comes to negotiating with us or when it comes to signing a contract with us and we've gone early. There's no doubt about that. We will be disappointed if those contracts don't look cheap in hindsight, but as you said before, we've been very disciplined that we've waited until we can write contracts at levels where we make good money. It's just that we think that shareholders deserve a bit better after their patience and we're confident that this market will continue to develop. Now, the reason for going early is so that when we do see a really buoyant market setup and when we do see quite intense contracting activity, we're better able to capture that value because of the factors that I've just mentioned because we've got that strong external validation because other utilities won't be apprehensive about dealing with us because they don't know what we're doing or they don't know if we're going to bumble along or not. The last thing a utility wants in a supply squeeze is getting caught teaching a counterparty, a new entrant, how to do their job. And through signing these contracts and announcing them with these type of counterparties, they know that they won't have to teach us how to do our job. We now know how to do it in this department.

Interesting, and there's a couple of quirks in our sector that I think any natural resources investor should understand, and it also helps the audience to understand why uranium is a bit different when it comes to financing than a copper or gold project, for example. So primarily, the main quirk is that the marketing of our product is more complex than traditional mining. It's not as complex as rare earths or mineral sands, for example, but it's more complex than copper or gold or nickel or silver or something more conventional. So that means that the financing is more complex and the role of offtake plays a much bigger role in the way that certainly traditional banking syndicates look at this. We've been very careful to make sure that we don't have, we haven't pursued financing alternatives that become interlocked with minimum levels of offtake at the front end. So what do I mean by that? We're being careful that we don't have any levels of offtake that become a prerequisite to financially closing a financing deal. And we have a number of different approaches that we're taking to financing. Again, it's part of our corporate flexibility strategy. We don't want to be locked in on one alternative. We want to have choices as we see this market develop and the way that this market develops and how quickly and how high and how fertile the market develops. We want to be able to choose the most appropriate financing solution. But common to all of those is we need to be able to close that solution and know that we at some point conditionally we can draw down the funds without demonstrating any particular level of offtake. That's because we don't want to have our backs against the wall when it comes to negotiating with utilities. These are really clever people. They've negotiated extensively, and if they know that them signing a piece of paper stands between us and having a financing solution that we can talk to the world about, of course, that puts them in an extraordinarily strong position, and we don't want to be in the corresponding weak position to that.

Now, when it comes to prepayments, it sounds very attractive, but you need to be very cautious about prepayments because they should always be the last mile to a financing solution, not the first grab of a financing solution. Now, what do I mean by that? Well, prepayments for a start are not easily available over longer tenure. The prepayments that we've seen recently in this sector have all been utilities or intermediaries who are prepared to effectively pay you six, maybe 12 months in advance. So for a start, when we are still a couple of years away from producing the product, it doesn't really help us very much anyway. But even if it did, prepayment can then obscure and make other forms of primary financing more difficult. So we've been very cautious, and it's something that we would only look to once we have settled and decided and locked in the overall financing stack. The other thing that I'd say about the sector, as it differs from other forms of mining, is although within uranium we become a little bit blasé about the power of long-term contracting, when I talk to somebody who's, say, a copper miner, they say, 'So hang on a sec, let me get this right. You can lock in minimum returns over a long term on your project and lock in minimum levels of profitability and still have upside. That sounds great.' And we sometimes need to remind ourselves that the opportunity here, particularly for Itango, is as this market develops, we're going to be able to have a combination, a portfolio of base price escalated and market-related contracts where those market-related contracts have got floors and, of course, ceilings as well, where the blended price of those base price escalated and the minimum floors in those market-related contracts across the portfolio give us a minimum profitable return while still having access to market-related conditions through the market-related contracts. So the difference between those floors and ceilings and the proportion of our product that we choose not to commit until we're basically producing it. So in simple terms, that's selling it into the spot market at the time, but we would do more sophisticated methods of realizing that value to optimize that value. So that presents yet another form of asymmetry in the uranium sector that I think deserves to be more recognized amongst investors and deserves to be more recognized for what it is, which is an asymmetrical bet. By the time we finish with this portfolio, we would expect to present to the market a blended minimum price that still delivers an attractive return. Still delivers, no matter what happens, investors are going to be happy with that return. Plus, they have really solid access to the upside. And then you mentioned the expansion. That's really the ultimate kicker. So if we find out that amongst that portfolio the uranium price is continuing to go up and continuing to look attractive, we won't have any buyer's remorse here, or we won't be regretful about writing those contracts because we can roll straight into delivering more than another 3 million pounds into that scenario, which is even more attractive uranium pricing. And of course, I'm talking well into the three figures there. So it gives us that second bite at the cherry, and that's likely to be ultimately the most profitable phase of this project because our financing costs will be very low, assuming we need to even go externally to financing. It would then open up further attractive avenues, including potentially prepayment, and we would be able to capture really all of that margin because we'd already been in production and we'd already be profitable.