Zacks Small Cap Analysis – Hearth Chat with John Borshoff, Managing Director and CEO of Deep Yellow Ltd. – Cyber Tech

OTC:DYLLF

Steven Ralston: Good day. That is Steven Ralston at Zacks Small Cap Analysis, and I am right here with John Borshoff, CEO of Deep Yellow. Hi there, John. Thanks for giving us the time for the CEO chat.

John Borshoff: Thanks, Steve. Pleasure to be right here.

SR: Within the time we’ve collectively, I would like to debate Deep Yellow’s most superior uranium initiatives, Tumas and Mulga Rock. First I would like to handle Tumas, which presently has a timetable for commencing manufacturing in late 2026. You’ve got traveled this journey earlier than, as you and your workforce superior Paladin to manufacturing within the 2003-2007 timeframe, and in the identical jurisdiction, very related palaeochannel deposits. Clearly, you are effectively up the training curve in addressing the phases of improvement for Tumas. Might you evaluate and distinction the trail right here at Tumas along with your expertise at Paladin?

JB: Sure, Steven, I’ll try this. Earlier than I do that, although, I simply need to simply give a bit little bit of background by way of the how I’ve positioned Deep Yellow and the similarities of that to what I did in Paladin. In Paladin once I began to do a contrarian strategy and creating a undertaking pipeline at a time when uranium wasn’t wanting sizzling in any respect. By that point, earlier than the China phenomenon occurred, I had two initiatives within the pipeline. Greenfield was prepared for improvement in Langer Heinrich and Kayelekera. The sort of ahead planning, the place we did not anticipate the precise timing of China’s involvement, simply galvanized our positioning.

JB: We grew to become an funding phenomena. This was a results of that positioning which no person else within the sector had executed. So, come ahead now 15 years and take a look at the place Deep Yellow is. Remarkably, we’re in an analogous place this time. I took a contrarian strategy as a result of I actually consider the chance lay in the truth that the sector is affected by a scarcity of uranium mine builders. And it is resulting from many causes, the place experience disappeared and principally most firms and their initiatives went on standstill. So in getting Deep Yellow to the place it’s immediately, what we’ve bought is 2 Greenfield initiatives prepared for improvement over the subsequent three to 4 years in Tumas and Mulga Rock.

JB: However in parallel with that, one of many greatest elements of asset improvement has been bringing the core workforce from Paladin, which was the one firm to develop standard uranium mines over the earlier 25 years. And so the asset was Deep Yellow, which is the workforce we’re accustomed to. It isn’t simply geological. It isn’t simply developmental or operational. It is governance, financing, and all the key attributes wanted for uranium mining are inside Deep Yellow. That is the primary achievement we’ve achieved quietly, with goal and imaginative and prescient. While you take a look at the world immediately, there’s a critical lack of Greenfield initiatives prepared for improvement with groups that may demonstrably develop and have credibility. That is level primary.

JB: So, one expertise that I had and launched into Deep Yellow, which I had efficiently utilized with Paladin, is our present strategy. We aimed to marry, merge, and get a really thorough DFS out by February 2023. Then, having the fortitude and imaginative and prescient, we determined to re-cost that six months later, which proved to be an excellent transfer. The rationale for the re-costing was that the February 2023 DFS confronted headwinds from inflation and provide chain points. Despite the fact that about 75% of the DFS was primarily based on tenders quite than simply factoring, these headwinds added additional prices. We included them within the DFS as a result of our goal was not simply to create a showpiece for shareholders, however to current one thing we knew we needed to honor and develop. Our purpose is to change into a significant producer within the sector.

JB: To remove any doubt concerning the DFS, we spent a substantial amount of cash along with the undertaking engineer and our workforce, which gives all the method IPs and all the pieces. We re-examined the CapEx and OpEx, and re-costed them as an addendum to the DFS, signed off by the undertaking engineer, making it absolutely auditable. Because of this, we decreased the CapEx by about $20 million USD. The OpEx got here in barely increased, nevertheless it wasn’t vital sufficient to alter issues total. This increased OpEx absorbed a 12% enhance in gasoline prices and a ten% enhance in energy prices.

JB: So the truth is, our outdated DFS had the OpEx about proper, which helped remove issues or doubts {that a} financier may need. They could have checked out it and thought, ‘Oh, that is what they had been speaking about.’ This warning possible comes from our expertise with Langer. We now higher perceive how financiers assume. These financiers have been concerned with us beforehand, so we’ve a monitor document of honoring our commitments. We have positioned a much bigger emphasis on tendering the EPCM contract, making certain we get the perfect out of it. We want an EPCM contractor able to delivering on schedule, on worth, and on value, aiming for manufacturing in 2026.

JB: So, we have invested a variety of effort into this. We have chosen our detailed engineer who will deal with the engineering and EPCM. This has been introduced, and now we’re specializing in what they name the SP1 element, which entails feed or detailed engineering, and the SP2 element, which is the precise building execution. We’re presently enhancing the natural construction of our administration strategy from our facet, making certain alignment between what the engineer perceives and what we perceive on our finish. This prevents surprises like abruptly discovering halfway by that there is an extra $50 million in prices resulting from discrepancies between on-site actions and documentation.

JB: Our efforts in advancing our financing have been substantial. We have built-in key personnel from Paladin into our group, and we’re on the verge of saying a mandate with a financial institution, which is progressing easily. One essential facet we’re analyzing is the optimum leverage in opposition to the price of fairness. Preserving the upside potential of our contracts and offtake agreements is paramount to make sure most shareholder profit. We now have a extra refined homeowners workforce in place, specializing in co-managing the design approval course of and integrating operational specialists who will stay integral to the undertaking’s ongoing success. I hope that clarifies issues for you.

SR: Sure. And thanks for these insights on the Tumas undertaking. We may now transfer to the Mulga Rock undertaking. Earlier this 12 months Deep Yellow launched up to date MRE on two deposits which can be at Mulga Rock. And for the primary time, it included estimates of essential minerals, particularly copper, nickel, cobalt, zinc, and uncommon earths. It elevated the estimate by 85%. I perceive we must always count on and revise DFS that may optimize the mining strategies for the restoration of those essential minerals. What else is being deliberate to contribute to this revised DFS, which we count on in a bit over a 12 months from now?

JB: Proper. Throughout our due diligence on Vimy, the earlier homeowners of Mulga Rock, we recognized potential upside that we felt was not absolutely captured of their 2018 DFS, which serves because the core technical doc. There was additionally a subsequent promotional refresh of the DFS that lacked authoritative backing. The panorama for uranium has developed considerably from the post-Fukushima period of 2010-2011 by 2018 to 2022-2023. The parameters on which Vimy’s DFS was primarily based not aligned with the present realities. For example, essential and battery minerals, in addition to uncommon earths, weren’t main concerns again then.

JB: So, Vimy centered totally on addressing environmental issues and extracting simply leachable base metals, which they meant to discover additional of their subsequent bankable feasibility examine. Our evaluation revealed vital upside potential, each in deciphering the ore physique and in how Vimy’s intensive drilling and take a look at work could possibly be leveraged. Whereas their integrity in information assortment was not in query, we recognized extra potential in uranium. It is value noting that the undertaking stays basically a standalone uranium enterprise, a perspective we proceed to uphold.

JB: And so, following the merger, we explored worth addition by essential minerals and uncommon earths, revealing vital upside potential. Our preliminary assessments confirmed this, suggesting a transformative influence on the undertaking’s longevity and worth. Since August 2022, and ongoing, 4 key elements are shaping our revised DFS. Firstly, the mineral useful resource estimates, which we carried out and located to be very favorable. This concerned infilling roughly 600 to 700 drill holes throughout the expansive 15-kilometer ore physique.

JB: So, we achieved indicated and measured assets by our intensive drilling, forming the muse for reserve determinations, yielding wonderful outcomes. Concurrently, we centered on optimizing the leach kinetics of non-uranium minerals, as uranium restoration strategies had been already well-established. This effort confirmed promising outcomes, projecting a mean restoration fee of at the very least 70% throughout all focused metals, which can inform our revised DFS. The subsequent essential element entails superior resin expertise, which we’re presently creating. This innovation goals to sequentially extract uranium, essential minerals, and uncommon earths, enhancing the undertaking’s total processing effectivity and worth.

JB: The pilot examine for the superior resin expertise is slated to begin within the subsequent quarter, marking an important step ahead. Concurrently, we’re conducting in-house DFS preparations, laying the groundwork for the undertaking’s complete improvement technique. Moreover, resulting from our shift in direction of extra non-selective mining strategies, we’re fastidiously refining the mining schedule. This evaluation will dictate gear wants, beneficiation necessities, and operational logistics comparable to mixing on the ROM pad or direct processing on the plant. These assessments are a part of a rigorous examine presently underway. As these elements, two of that are already in progress, come collectively, we anticipate initiating the revised DFS later this 12 months.

JB: We have already begun the method, and we anticipate releasing the revised DFS within the early second half of subsequent 12 months. This up to date plan forecasts a major extension within the undertaking’s lifespan, increasing from the preliminary 15 years to roughly 23 to 24 years. Importantly, this projection excludes the Mulga Rock West deposit, generally known as the Emperor deposit, which may probably add one other 10 years to the mine life. With environmental approvals already secured inside our operational footprint, we’re poised to proceed confidently. We’re extremely happy with our progress so far and optimistic concerning the undertaking’s potential. We envision a strong, long-term mining operation that might begin manufacturing in late 2028.

SR: Thanks. Final and remaining query and it is extra of a buyers overview kind query. We all know the motive force in the course of the previous uranium cycles has been the imbalance of provide and demand, which was exacerbated by the money and time it is required to deliver new mines into manufacturing. However on the identical time, there are a collection of basic developments in every specific uranium firm. It performs an necessary function. And as an investor, we’ve to have a look at each, within the firm and the trade. Based mostly in your expertise, would you touch upon the interaction between that macro setting of the provision scarcity of uranium manufacturing with the dynamics of uranium firms phases of improvement?

JB: So, in broad strokes, we have witnessed a macroeconomic panorama the place, past the preliminary uranium growth pushed by navy functions within the ’40s and ’50s, subsequent phases had been formed by shifts in vitality wants. The oil shocks of the mid-Twentieth century prompted a surge in nuclear energy adoption for electrical energy era, till the Chernobyl incident dampened enthusiasm. Extra not too long ago, the early 2000s noticed a resurgence pushed notably by China’s speedy financial development, which reinvigorated international curiosity in nuclear energy and uranium, largely propelled by China’s demand.

JB: Since round September 2023, we have entered a brand new part within the uranium sector, catalyzed by findings from the World Nuclear Affiliation Symposium. Their advertising and marketing examine, although outdated on the time, highlighted a basic uranium scarcity amidst an trade that had seen minimal improvement for over a decade. This revelation sparked a growth, reshaping international vitality methods. International locations worldwide at the moment are emphatically endorsing nuclear energy, recognizing renewables as just one element of a broader vitality technique. This shift mirrors the top-down coverage approaches seen throughout earlier vitality crises just like the oil shocks, marking a major departure from previous dynamics.

JB: Governments are endorsing nuclear energy amid issues over the dangers and uncertainties related to transitioning to renewable vitality applied sciences, which haven’t been examined on an industrial scale earlier than. This shift represents a major departure from earlier dynamics, the place the main focus was totally on established nuclear reactor distributors like Westinghouse and GE, together with licensing agreements with dependable builders comparable to Korean companies. These companies have demonstrated their functionality with profitable initiatives within the Emirates, France, China, and Russia, attaining near-budget and on-time completion.

JB: And now, alongside these giant items, there is a rising availability of small modular reactors (SMRs), which supply a tailor-made strategy by no means earlier than seen within the trade. These SMRs will not substitute the bigger reactors however present new choices. Wanting forward, there are additionally plans for micro reactors, anticipated to be operational in about six years, designed for industrial and company use at round 25 megawatts, with refueling capabilities. These developments will considerably enhance demand for uranium. As present inventories dwindle — presently round 30 million kilos alongside the annual manufacturing of 150 million kilos — projections point out a necessity for 250 to 300 million kilos yearly by the late 2030s to early 2040s.

JB: So, for firms like Deep Yellow, together with our personal, strategic positioning is essential. Within the evolving uranium market, single-mine operations are much less vital except they characteristic a NextGen ore deposit with substantial scale and long-term viability. Diversification, each by way of asset dimension and geographic unfold, is now crucial for making certain provide safety. Deep Yellow has strategically constructed a pipeline of initiatives over the previous seven years, a method that is still related immediately. Because the trade faces a scarcity of Greenfield initiatives and growing demand for uranium, components like a strong DFS and profitable financing play essential roles in enhancing firm worth. We have noticed how firms like Boss and Paladin have seen their values soar, and we purpose to leverage our assets and reserves to seize related worth appreciation.

JB: We’re centered on attaining vital milestones that won’t solely mirror the rising tide of uranium costs but in addition distinguish us by meticulous preparation, our devoted workforce, and a deep understanding of market dynamics. Our purpose is to ship substantial worth to shareholders by strategically positioning Deep Yellow forward of the curve in addressing the long run provide wants of the uranium market. We acknowledge the crucial to distinguish ourselves from the present panorama of uranium firms, making certain we’re not complacent however quite proactive and modern in our strategy. This forward-thinking technique is important as we navigate in direction of assembly the substantial future demand for uranium.

SR: Properly, thanks John. And thanks in your time for collaborating on this CEO chat.

JB: It is a pleasure, Steven.

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