John Borshoff and Deep Yellow
(Uranium Mining Stocks 13/5/2023)
Deep Yellow ($DYL) is a uranium exploration and development company focused on becoming a multi-jurisdictional Tier-1 Uranium mining company. With a highly experienced management team and board of directors, Deep Yellow has the building blocks to establish itself as a major player in the uranium industry. The company’s Tumas Project and Mulga Rock Project are world-class long-life assets with significant production potential, and its extensive high quality exploration portfolio provides further opportunities for growth.
Additionally, Deep Yellow has the largest uranium resource base of any ASX-listed uranium company. With a favourable market backdrop that includes growing recognition of nuclear power as a clean and reliable energy source, Deep Yellow is well-positioned to capitalise on the increasing demand for uranium. In this article, we will explore why Deep Yellow is an attractive investment opportunity based on its experienced management team, strong projects and exploration portfolio, large resource base, favourable market backdrop, and growth strategy.
Management
Deep Yellow’s leadership team and board of directors are a formidable group, with decades of experience and extensive expertise in the uranium mining industry. CEO John Borshoff, a 40-year industry veteran leads the team. Other members of the team have also held key roles in some of the largest uranium mining companies such as Paladin, Rio Tinto, BHP and Orano. This is largely a team that has “danced” together in the past, in growing Paladin from an explorer to a producer. The recent addition of new members following the Vimy Merger, means Deep Yellow is now better positioned than before, particularly in an industry that is desperate for the experienced personnel. This puts Deep Yellow in a stronger position than most junior uranium companies, ensuring that the team can effectively implement the company’s growth strategy.
A Management Team with Depth.John Borshoff’s experience and exploits in the uranium industry are particularly noteworthy. He is widely recognized for his exceptional leadership skills, strategic vision, and ability to identify, time and capitalize on emerging market trends. As the founder, CEO, and managing director of Paladin Energy, he transformed the company from a junior explorer to a multi-mine uranium producer with a global asset base and valuation of over US$5 billion at its peak all in one cycle. Under his leadership, Paladin Energy developed two world-class uranium mines in Namibia (Langer Heinrich, $PDN) and Malawi (Kayekelera, $LOT).
A Man of IntegrityPaladin Annual Report 2009
Borshoff’s extensive experience in the uranium mining industry has earned him a reputation as one of Western Australia’s most successful businessmen. In fact he was featured on the BRW Rich 200 list in May 2007 with $205m.
The kind of CEO I want handling my moneyThe rapid development of the Langer Heinrich and Kayelekera mines showcases John Borshoff’s exceptional ability to bring greenfield exploration projects to full-scale production in record time. Within just two years, the Langer Heinrich mine went from initial construction in September 2005 to its first shipment in March 2007, similiarly the Kayelekera mine took two years, with construction starting in June 2007 and the first shipment occurring in August 2009. It is important to note that both projects were completed within their designated timelines and budgets, a remarkable achievement considering Kayelekera was developed in a non-uranium producing jurisdictionwhere the entire national uranium production and export infrastructure had to be established from scratch.
Borshoff’s past Exploits.The unique nature of the uranium sector becomes evident when considering the scarcity of developers who have successfully taken projects from exploration to actual mine production. Unlike other industries, there is a limited track record of uranium developers accomplishing this feat, with many significant projects historically undertaken by state actors or major companies. This presents a challenge for investors seeking a developer with a proven track record, especially at the junior level.
However, John Borshoff stands out as an exceptional figure in the industry. He has not only built mines but has done so as a developer, overcoming the inherent limitations and complexities that accompany such endeavors. His achievements highlight his unparalleled expertise and make him a rare and valuable asset for those looking to invest in uranium.
Deep Yellow recognizes the potential risks associated with key man dependency and has taken proactive measures to mitigate such risks. While John Borshoff plays a crucial role within the company, the strength of Deep Yellow’s management team and board of directors lies in their collective expertise and diverse skill set. This ensures that the company is not solely reliant on one individual for its success. Deep Yellow has made strategic investments in cultivating a talented and capable management bench, placing significant emphasis on succession planning. This forward-thinking approach should instill confidence in investors, as it demonstrates the company’s commitment to long-term stability and continuity.
Positive Uranium Outlook has an outsized impact on Deep Yellow
The uranium market is currently experiencing a significant sentiment shift as more countries recognize nuclear power as a clean and reliable energy source.
- The transition from fossil fuels using renewables has been slower than anticipated. Despite significant investments, the rollout has been sluggish, and some sectors, such as transportation, have yet to deploy any renewables. This lack of depth and breadth in renewable penetration underscores the need for alternative affordable, clean and reliable energy sources, which is where nuclear power comes in.
- Public sentiment has shifted regarding the idea of degrowth in developing countries. The realization that it is inhumane to demand that poorer countries sacrifice their development for the benefit of wealthier nations has become more widespread. While we acknowledge and respect their need for energy today and in the future, a solution is needed to fill the growing energy gap. Nuclear power is now being seen as an acceptable option.
- There has been a notable shift in sentiment towards nuclear power in developed economies, with growing support from the general population, particularly among the younger demographic. This shift is also driven by a recognition of the high costs associated with renewables and the vulnerability we face following the War with Russia. The importance of affordable and realiable energy has become increasingly evident.
- The outlook for the uranium market is very positive as we witness a significant surge in the nuclear power infrastructure projects worldwide. The proposed and planned projects for nuclear power plants and small modular reactors indicate that we are about to build as much nuclear power infrastructure in the next ten years as we did in the previous century. The question arises, are we planning to bring on as many uranium mines in the next decade as we have done in the past hundred years? Are we even close to meeting the coming demand?
The rising demand for uranium, fueled by the shifting sentiment towards nuclear power in major economies, creates a compelling opportunity for high cost developers such as Deep Yellow. Typically, high cost miners are considered “out of the money” when the commodity price is below their production costs and so trade at steep discounts.
However given the positive outlook for the price of uranium, higher prices could have an especially pronounced impact on out of the money miners like Deep Yellow. As the commodity price exceeds their production costs, their financial viability improves significantly.
On the other hand, low cost producers that were already “in the money” benefit from a higher commodity price as well. However, their profitability improvements will be relatively smaller since they were already operating with favorable profit margins prior to the price increase.
Considering the ongoing upward trend in uranium prices, Deep Yellow stands to capture significant upside potential. The company’s undervaluation at its present prices further adds to the attractiveness of the investment opportunity.
Deep Yellow’s Schadenfreude at the Current Uranium Mining Market
Despite the positive sector outlook for uranium, Deep Yellow recognizes the challenges faced by junior miners in filling the production gap left by major mining companies like Rio Tinto exiting the sector. The departure of established players has created a situation where inexperienced junior companies are left to navigate the industry. In the previous bull market, only one man, Borshoff, successfully took a junior company into production, highlighting the rarity of such achievements. In fact, in the last 75 years, only three junior companies outside of the USA have accomplished this feat. With limited experience and untested capabilities, many junior miners may struggle to deliver on their ambitious promises of building a uranium mine. While their intentions may be genuine, they lack the proven track record necessary to ensure successful execution.
In previous cycles, the focus for uranium mining companies was primarily on increasing production volume. However, in today’s market, there is an additional critical demand placed on these companies: the need for both diversity and security of supply. Major mining houses such as Cameco and Kazatomprom are partially able to answer this call whilst Developers, such as Bannerman, Forsys, Aura, Global Atomic, and Goviex, struggle. Goviex despite its efforts to position itself as a multi-jurisdictional developer, ultimately had to sell off its assets due to a lack of depth in their management team to effectively execute a multi-asset, multi-jurisdictional strategy. Deep Yellow, on the other hand, is uniquely positioned to address the need for diversity and security of supply in the uranium market.
Let’s take a closer look at the current restart companies ($LOT, $PDN, $BOSS). Do they possess the experienced management teams capable of successfully restarting operations and ramping up production? Have they demonstrated this ability in the past? Just consider the fact that the knowledgeable individuals from Paladin, who were instrumental in its success as producers, now lead Deep Yellow. Despite Paladin’s valuation, it is important to recognize that the current team has yet to prove their capabilities and justify their current valuation. Some industry commentators mistakenly believe that restarting C&M mines is as simple as flipping a switch, using this flawed logic to justify inflated valuations. However, when we assess these mines through the lens of personnel expertise, it becomes clear that restarting C&M mines may prove more challenging, time-consuming, and less profitable than expected.
Let’s take a look at a another junior player in the market, namely Lotus ($LOT), which has gained popularity among the more “sophisticated” crowd. The team at Lotus made headlines when they acquired the former Paladin mine, Kayelekera, in Malawi in 2020—a mine that was originally built by Borshoff. Where are those who were instrumental in the construction and operation of that mine today? It is crucial to look beyond the hype surrounding these companies and acknowledge the potential challenges they may encounter in their endeavors.
Deep Yellow’s Main Assets
Deep Yellow’s Main Assets are the Tumas Project and Mulga Rock Project. Both exceptional assets with immense production potential.
Tumas bears similarities to the successful Langer Heinrich (LH) Mine, which Borshoff has personally overseen in terms of construction and management. The expertise gained from the LH Mine, combined with the team’s experience, positions them favorably for the successful development of the Tumas Project. Therefore the Tumas Project takes precedence in Borshoff’s development plans. Additionally, Tumas is situated in a jurisdiction where Borshoff has prior experience and knowledge, having previously executed projects in the same area. This familiarity with the local environment serves as a valuable asset, ensuring a streamlined and efficient development process. But what does all this mean in practical terms?
While other junior mining companies may have a theoretical understanding of the requirements for project development, their actual execution experience falls short. Their knowledge remains superficial, confined to mere plans on paper without practical implementation in the field. In contrast, Borshoff and his team at Deep Yellow bring an unparalleled depth of knowledge derived from their hands-on experience as builders.
The distinction lies in the fact that Deep Yellow’s team has gone beyond theory and successfully executed projects on the ground. They have a proven track record of translating conceptual plans into tangible results, having navigated the challenges and complexities of project development firsthand. This practical expertise sets them apart, as they possess invaluable insights and lessons learned from their previous accomplishments.
By having executed in the field, Borshoff and his team possess a comprehensive understanding of the intricacies involved in construction, operations, and stakeholder engagement. Their knowledge is rooted in real-world scenarios, enabling them to anticipate potential hurdles, proactively address issues, and make informed decisions based on practical considerations.
While other companies may rely on theoretical frameworks, Deep Yellow’s team offers the assurance of practical wisdom acquired through their direct involvement in every stage of project development. This depth of knowledge empowers them to overcome challenges efficiently, optimize processes, and deliver successful outcomes.
In short, Deep Yellow’s advantage lies in their ability to transcend theoretical plans and draw from their wealth of field experience. Their expertise goes beyond surface-level understanding, providing them with the insights and acumen needed to navigate the complexities of project execution with confidence.
The merger between Deep Yellow and Vimy in 2022 resulted in the acquisition of the intriguing Mulga Rock project. However the development of Mulga Rock was handled by a team that lacked the extensive mine building expertise of Borshoff and his experienced staff at Deep Yellow. As a result, the project did not undergo the meticulous development process that Borshoff recognizes as crucial for a successful launch. Furthermore, Mulga Rock is located in a jurisdiction known for its intricate regulatory landscape, which adds an additional layer of challenges to the project.
However, despite these hurdles, Mulga Rock still holds significant potential as a follow-on project for Deep Yellow once Tumas is developed. While other uranium juniors may have one promising asset in their portfolio, what sets Deep Yellow apart from other uranium junior companies is the fact that they possess not just one, but two late-stage assets ready to be brought into production during this cycle, and on a substantial scale. This positions the company for greater potential upside as they navigate the development process and take advantage of a favorable market environment.
Deep Yellow’s Secondary Assets
Deep Yellow boasts a high-quality exploration portfolio that rivals the most promising Athabascan explorers, highlighted by its Omahola and Alligator River projects. These projects hold immense potential and are strategically situated in regions with well-established uranium mining infrastructure.
The Omahola project, located in Namibia, features a resource of 125 million pounds of U3O8 at an average grade of 190 parts per million (ppm) U3O8. Similarly, the Alligator River project, situated in Australia, boasts a resource of 26 million pounds of U3O8 at an average grade of 1.29% U3O8. Both projects are positioned in highly prospective areas, offering significant exploration upside and organic growth opportunities for Deep Yellow. The company’s ongoing exploration activities at these locations, particularly at the increasingly promising Alligator River, underscore its confidence in the substantial potential these projects hold.
What can we look forward to in 2023?
– Further focused test work continuing to optimise Tumas Project in Q1/Q2 2023
– Resource upgrade drilling west of Tumas 3 deposit in Q2/Q3 2023
– Grant of MLA 237 property (on the Tumas River Paleochannel) for Tumas in mid-2023
– New resource statement for Alligator River in Q3 2023
– Completion of FEED for Tumas in Q3/Q4 2023
– Project finance finalised for Tumas in Q4 ’23/Q1 ’24 *Subject to the price of Uranium
– Last but not least – M&A
Parting Thoughts
“Deep Yellow is on a pathway to becoming a reliable and long-term uranium producer, able to provide production optionality, security of supply and geographic diversity.”
Deep Yellow Investor Presentation, May 2023
With a proven track record, ample financial resources, and unmatched personnel, Deep Yellow’s capabilities surpass those of its peers, positioning the company as without equal in the uranium mining sector and offering investors an unparalleled opportunity for growth and success.
https://www.uraniumtraders.com/index.php/2023/05/13/deep-diving-deep-yellow/
