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Transcript
Future Money Trends: Today, we are going to cover how to thrive in the new economy. Our guest has been featured in the “Fortune” magazine. He is on the Casey Research NexTen list, as well as their Ten Bagger Club. He has attracted top investors like Rick Rule and Li Kashing, the richest man in all of Asia. He is the founder and CEO of Uranium Energy Corp and the founder and Chairman of Brazil Resources. Amir Adnani, thank you for joining us.
Amir Adnani: Thank you for having me.
Future Money Trends: Amir, I want to start off the first one with somewhat of a haymaker question, where we put you back on your heels a little bit. You were building Uranium Energy Corp; it’s now a uraniumproducing company, one of only five in the nation. I want to recall that shortly after you announced production, maybe even within days, Fukushima happened. I just want to go back to that moment. You’re a young businessbuilder. You accomplish something that was enormous for anyone, for any CEO of a resource company.
As you know, nearly all of them do not go into production, yet UEC did. Then you have this disaster that you just can’t control. A lot of people run into things like these and setbacks.
If we could go back to that time, you make this major announcement, and then Fukushima happens. What’s going through your head, and what are some of the things that you focused on shortly thereafter?
Amir: I’m just going back in time, trying to remember all of that. First of all, we had started initial production in late 2010, so really just about three months before Fukushima happened on March 11, 2011.
The time was that we were basically a few months into initial production from our Palangana mine. March 11th was a Friday. March 14, 2011, Monday, was actually when our first ever quarterly production results were due.
Leading up to that, there was a lot of enthusiasm and excitement, both on our part, to come out and show the progress we were making as an up and coming producer at the time, really the newest uranium producer in the U.S. in almost seven or eight years.
The uniqueness and scarcity of being a uranium producer is part of the appeal of being in this business. Anyway, that was an important date. A lot of work had gone into it, not just the quarter’s worth of work, but the five years worth of work prior to that to take this company from, really, concept and exploration development into that production.Just looking back, what was going through my mind is really twofold. You have to remember that the events around Fukushima on March 11th really initially had way more to do with the earthquake and tsunami that struck Japan and was responsible for thousands of lives that were lost as a result of it, which obviously had nothing to do with the nuclear accident.
Clearly, it was just a very traumatic experience. Really, just as a human being, watching and seeing what’s happening there, in Japan, and the devastation that was caused by this natural disaster, the two natural disasters, the odds of which happening back to back were like 1 in 1,000, when you look back at the commentary at the time.Then, of course, over the weekend is when we started to see the news start to unfold and come out more about the damage that had happened to Fukushima and the nuclear issue around it.Obviously, it was a very flat moment for us, on Monday, when we put out our quarterly results, which we were very proud of because we had very lowcost production results. It really didn’t matter because including ours was cut in half on Monday, March 14, 2011. You just looked back, and it was very extraordinary circumstances. Just the timing of it visàvis what we were trying to deliver was just very difficult, but there are just so many other problems layered on top of that. Puts our problems into perspective. That’s how we felt, at the time and even now, about the whole thing.
Future Money Trends: It’s still something that lingers in the uranium market. The uranium spot price is ridiculously low, as you know. It’s caused some companies to pull back, scale production back, or not go into production with a mine. What is the state of the uranium market, and how closely does it affect UEC?
Amir: When you look at the uranium market today, maybe the best way to characterize it or think of it is that, especially from a pricing point of view, it really feels like it’s become a coil to a spring. Every month that goes by and prices keep falling and dropping lower, the tighter this coiled spring is getting. That’s why you’ve had people like Rob Chang, the well followed uranium analyst at Cantor Fitzgerald, talk about how there’s violent upward moves coming in uranium prices.
It’s what we see in commodities all the time. Historically it’s when you end up in this scenario where prices get so low, to the point that mines are being put on hold. Mines are being put on care and maintenance, and standby projects are being deferred. We’re seeing that almost every week now. There’s some news of that from some part of the world in the uranium business. You just know the writing is on the wall. You just know that uranium prices right now at $28 a pound are so low. They’re below the marginal cost of production. They’re well below what reports suggest if price is to see uranium production come back online.
Reports by the likes of JP Morgan, McCrory have talked about incentive prices to see new mines get developed, large scale conventional mines around $75, $80 a pound being the incentive price. Here we are, spot prices at $28 per pound. Marginal cost of production for existing mines is probably somewhere around $35, $40 per pound. We’re even below that. This is your classic situation where prices have just fallen so low it’s not economic.
You look at someone like Rick Rule, who’s involved with our company. He’s said things like, “Well, two things are going to happen. Either people are going to stop using uranium or prices are going to have to go back up.” With over 400 nuclear reactors operating in the world, I don’t think it’s the case that people are stopping using uranium.
There’s a fundamental demand profile and customer base for uranium. It goes back to that coiled spring and that’s the best way to think about the uranium situation right now. It’s taken a long time. We’re over three years post Fukushima today. I believe that even when you look back even as far as my own expectations go, the expectations of the uranium mining industry goes, the bigger companies in the industry, everyone has expected prices could have recovered or improved maybe a year ago, maybe a year and a half ago. But the recovery has taken longer.
Future Money Trends: For sure. If you like electricity and you want to turn your lights on and watch TV or use your computer or have the Internet, you’ve got to have uranium. You mentioned Rick Rule, and Rick Rule says that you are a force of nature. Doug Casey says you’re the next great one when it comes to resource CEOs. I imagine this is both humbling and it also sets a pretty high expectation for you. I was wondering, when it comes to Doug Casey, Rick Rule, and Marin Katusa , if you could just speak on your relationship with them and how you met them in the first place in the resource sector…I know it’s kind of a small world, but a lot of people follow these guys on a daily basis, and these guys have given you quite an endorsement.What are your thoughts on the other side when you hear things and comments that you’ve probably heard by now coming from Rick Rule and Doug Casey regarding yourself.
Amir: First of all, it’s extremely humbling to have guys who are really legendary in terms of their careers and existence and persona and track record in the national resources business be positive and endorse not just what I’m doing but the companies that I’m involved with…and it’s not just me. We have teams at both Uranium Energy and Brazil Resources that are the best at what they do. But to receive that kind of endorsement from the likes of the people you just mentioned, the Rick Rules, the Doug Caseys, etc, is really humbling, it’s great. But at the same time, then, these are the types of supporters that any natural resource entrepreneur would love to have.
These are the types of individuals and investors who understand the longterm nature of this business, understand the inevitable cyclicality of this business, and understand that when markets are down, when uranium prices are down, when gold prices are down, these are actually the best times to grow, the best opportunities in terms of looking at assets and valuations. If you’re not afraid to be a contrarian and step up and really hit behind the management teams and companies that deal really light.
It really all goes handinhand. The entrepreneurs and the sector people like myself need to be able to draw the attention and support of investors like that that have that contrarian approach that are long term in nature. As we perform and we deliver more value and results for those shareholders the more you continue to have their support. It’s just this ongoing situation and a relationship where you really all work together. At the end of the day, you know how it is, when you have a small business or when you’re building a small company, when you have bigger aspirations. At the end of the day, Uranium Energy Corp., Brazil Resources we’re small companies. We’re not an IBM yet or Exxon, Volvo. You need shareholders that really think and act like business owners.
You want a chunk of this company, you want shares in this company, be a part of that business. That’s what is really key about having the backing and support of people like this. They really think like you and with you as an entrepreneur who wants to grow and create value.
Future Money Trends: As an entrepreneur, a lot of people especially in the business world they’ll find themselves in a difficult experience and many of them just throw in the towel or they allow their environment to become their excuse. I’ve noticed especially with Brazil Resources and UEC, but with Brazil Resources you launched it, I want to say, in the spring of 2011. That was when silver peaked in the spring of 2011 and gold shortly thereafter. Of course, we all know what’s happened to the gold exploration companies after that. A lot of people have thrown in the towel.
If you could just talk on how do you build a gold company when this headwind…Because a lot of people can apply that to a lot of other things and businesses in life where I’ve talked to real estate investors where their best years were in 2008 when real estate was falling apart. Or financial advisers like Peter Schiff, for example where his business thrived and boomed in 2008 and 2009. If you could just talk about basically how you’ve been running this gold exploration company, yet this entire time the headwinds for the junior stocks and the headwinds for the actual gold price has been quite heavy.
Amir: Again, it starts really with the team that we have. You look at Brazil Resources, we’ve got a fabulous team there. The management, the board of directors, we’ve got the right people on the ground in Brazil, we’ve got the partnership with a Sao Paulo based merchant bank, Brazil Invest. It’s really unique to see a junior company form that kind of partnership and have that kind of local sponsor and partner.
It really gives you strategic access to capital, deal flow, relationships, and government access. The foundation around the right people, the right board members, the right shareholders, the right local partners. With that foundation, we really have positioned ourselves to be opportunistic two and a half, three years. To take advantage of a very distressed…but to me, it’s like being a kid in a candy store. This is a very capital intensive business. When it’s as capital intensive as exploration and mining is you need to have those cycles and those periods where you can buy things 10 cents on the dollar, etc. You need those opportunities because otherwise then all the capital it takes to acquire assets and gather assets if you’re are always paying full value full price it’s going to take a lot of capital.
If you look at even how some of the deal making, some of the ways to be nimble and entrepreneurial has helped Uranium Energy fast track. You look at the fact that we went from concept to production in five years. We were optimistic in 2009. Coming out of the 2008 financial crises, uranium prices hadn’t recovered yet. In fact, uranium prices were almost a year behind the recovery curve that we saw in other metal prices. In 2009, while uranium prices were flat out of favor, that’s when we went and cut a deal with a uranium mining company at the time and we acquired their entire portfolio in South Texas that had a lot of synergy with the portfolio that we had, but most importantly came with a processing plant, the Hobson plant that’s now the heart of our South Texas hubandspoke production strategy.
You look at that asset just on the books of Uranium One versus the company we bought it from which was a public company, that and the portfolio that we acquired from them had almost a $96 million, $98 million books value in late 2008. In late 2009, we acquired everything for what amounted to be about $12 million in cash and stock. These types of deals are almost paramount to be able to do because if you’re always paying full prices and you’re growing these companies in an extremely capital intensive longer and it can cost a lot more.
When you look at the trajectory of growth that both Uranium Energy and what’s being vent off at Brazil Resources, some similarities. But then again at the end of the day you can acquire and gather the best assets but you still got to be able to advance them and deliver results with those assets. That’s why it’s not just being able to buy things at an attractive valuation it’s also picking the team, why I emphasized that right at the getgo, having a team in place that can then advance those assets up the value curve, derisk them appropriately and then ultimately be able to produce and generate cash flow.
Future Money Trends: You’re obviously a natural born entrepreneur. I just want to know how did you become attracted to the resource sector. Why not tech stocks or why not some other type of private business that never goes public? How did you find yourself building publicly traded resource companies?
Amir: It’s a number of reasons. I think that the natural resource business and the natural resource sector really is a phenomenal way of creating wealth and making money in the sense that this is one of the oldest industries in the world. This is an industry that we’re always going to need. We’re always going to need the raw material and goods that the mining industry produces. It’s not the type of industry where all of a sudden a new website gets launched and people stop using the old one and jump on to the new one and your business is wiped out. I’m referring to the technology and to the dotcom. It’s a bricks and mortar business. It’s easy to understand. It’s one of those businesses where you really got to work hard at it and you can get results.
I grew up around it in that my father was in the commodities business. That was some very early exposure to the idea of commodities and being around commodities. But then after that, growing up in Vancouver, going to the University of British Columbia, coming out of UBC, you find yourself in junior exploration companies more than any other city in the world. Truly this is the epicenter. This is the Silicon Valley of junior mining, the way Silicon Valley is for technology companies. You find yourself here combining all those different reasonsthe natural desire to be in it, being in the right city, having the right background, having early exposure to the sector to the commodity business. To bring it all together and those entrepreneurial juices get going and you really feel that this is an area to really execute and go out there and deliver value for people. As you do, you develop a following in a city that understands and appreciates junior mining.
Having said that, I find that where I’ve done business now for the last nine years down in Texas, I find that when it comes down to jurisdiction…When we’re down in Texas building our business, here is a state that is entrepreneurial. You look at the tax rates, you look at how there’s more Fortune 500 companies in Texas than anywhere else, the energy boom, the fact that it’s the energy capital of the U.S. It’s fantastic as a mining natural resources entrepreneur to really also be in the right jurisdiction, which that environment around you is also what helps lift you. When I look at how we’re positioned in Texas, when I look at how we’re positioned in Brazil. You look at Brazil, it’s the B in BRICS countries the amount of entrepreneurship and the amount of energy that’s down there. The emerging class and the emerging wealth that’s being created amongst that country’s entrepreneurs it’s inspiring being down there and seeing that.
Being in the mining business is much about being in the environments that you’re in where you’re either raising capital or developing assets. When you look at places like Vancouver, places like Texas, places like Brazil I also think that it’s also about being in the right places and getting more of that inspiration and energy to do a better job and to be able to advance a better company.
Future Money Trends: That’s very interesting because Texas, as you probably know since you are familiar with that state, has seen a huge migration from the coastal states, California and New York. People are heading to Texas because of this. Of course they do have a shale boom going on right now and so the jobs are there. I want to move on to the stock price of UEC lately because I just want to give people an inside perspective of what it’s like to run one of these publicly traded companies. I’d like you to touch on a very important shareholder that lives in your house.
You told me a great story at the Casey Summit. I believe Casey only invited 10 or 12 publicly traded CEOs, you were one of them. You had told me a great story about a very important shareholder. We might be even able to talk a little bit about some principles that you plan on teaching that specific shareholder later on in life. If you could just tell the audience what we’re referring to as far as an important shareholder in your house.
Amir: Are you talking about my six year old son?
Future Money Trends: I am. I am talking about that shareholder. The one that trumps all.
Amir: He was actually on my case this morning. He’s really fascinated with rocks and the mining business as a result of just asking and inquiring about what daddy does. Basically, he also learned a little bit about the idea that there’s such a thing as stocks and they go up and down. There was about maybe $10 or $20 worth of investment. Initially, he handed to me a $20 bill and said, “Buy me some of your stock.”
Amir: Every morning in conversations that I have with him, “Love you. I’m going to work.” His response would be, “What’s the stock doing? Is it up or down?” He really gives me a hard time when it goes down. It was just hilarious.
Now he’s got a rock collection, Dennis. He’s out prospecting. He shows me the different rocks and asks me what next thing to potentially prospect it for, what I think they’re worth. When I offer to buy it from him, he asks me if I think that price is good and he immediately backs away and says he’s not selling. He’s gotten nervous about selling to me because he thinks I’m going to get a good deal out of him.
Future Money Trends: That is a great story. My son just the other day he said, “Dad, we’re writers,” because I told him that I write for a living. He goes, “We’re writers.” I was so proud. My heart melted. I said, “Yeah. We are writers. Of course I want to teach you the family business.” It seems like your son is definitely possibly a resource executive or maybe even a geologist with his enjoyment of those rocks.
Amir: It’s great.
Future Money Trends: Has he got a chance to see any of the ones that have been minted into coins? Because my kids have some silver coins and I’ve even showed them a gold coin. There’s just a natural human fascination with gold and silver.
Amir: He has the nuggets. You’d be very impressed with his collection. He’s got gold nuggets, he’s got rock specimen. He’s a bit of a rock junkie. He’s a rock hound at the age of six.
Future Money Trends: Let’s touch on UEC stock price. It’s been a wild ride just this last month. It’s a pretty consistent stock. It has a lot of attention. You’ve got a lot of big insiders, big institutions. People like Rick Rule supporting that company and part of the business.
When I look at buying businesses, I really do look at the business. For example, when I go to fill up my gas tank at Exxon Mobil I will often tell my four year old son that we own part of this business. I know people can become…Maybe they look at the stock price too much…Anyone who looks at a chart may ask, “Hey, Amir. What happened over the last 30 days?” Are you allowed to comment on that?
Amir: Overall, there are a number of factors at play here. Obviously, again, it goes back to the price of the commodity. We’re a uranium company so we’re extremely sensitive to the price of uranium especially because we’re one of the only, if not the only, pure play uranium producer that is unhedged. So we’re extremely sensitive to the whole thing. Unfortunately, the volatility in the uranium prices this past few months really went one way and that one way has been on the way down. Clearly we’ve seen some selling pressure on Uranium Energy, UEC shares as a result of that.
It’s been as volatile as basically seeing the stock at around $2 in early March and then going from $2 all the way down to 95 cents two weeks ago and now back at $1.60. The volatility really number one goes to the fact that uranium prices are continuing to go down and have been soft. This could reverse as we go into the second half of this year on the back of hopefully some more positive news coming out of Japan with respect to nuclear reactor restarts in Japan, which is widely believed and expected by a lot of people in the industry and analysts to be the catalyst event that could put a bit of reverse soul and some positive momentum into the uranium prices and then the uranium companies. We’re obviously watching that as well.
Over the last two or three weeks we’ve made a point also of getting out, communicating with our shareholder base, communicating the fundamentals about the company. The fact that the company is really sitting in a position where we’ve proactively reduced a lot of our cost structures and have cut back on spending as a way of preserving a stronger balance sheet, having financial flexibility, perhaps even looking at selling noncore assets. Texas is our hubandspoke production strategy but outside of Texas we’re sitting on close to 20 uranium properties with resources estimates, with tremendous of historic work that has been done. Another thing that we can do during a downturn is that if we’re not getting full value for some of our noncore assets, we could potentially look at asset divestitures. We’ve had this in mind as a way of further strengthening the balance sheet.
Getting out and communicating with our shareholders at the same time as having had a couple of bigger sellers that we have in the stock now being gone, the overlap of these effects have seen us go and make a quick reversal from 95 cents up to where we are now. But even at $1.60, we’re still shy of where we here at $2 around the TDAC. Our last equity financing at the end of last year was then at $2.10. Let’s not even talk about where we were preFukushima. But just for fun, preFukushima, we were at $7.50. We hadn’t even put out any production results and we had a third of the in ground resources that we have today.
Fundamentally you have to appreciate the fact that from a fundamental point of view, Uranium Energy Corp. has spent not only the last eight or nine years since inception, but even the last two years postFukushima. We’ve been investing in acquiring assets, we have made acquisitions that have helped grow our total acreage, total resources, historic information in our possession, decades worth of historic uranium mining and development exploration activity, which is the company’s intellectual capital.
Extracting big names to the company. Names like Spencer Abraham, who was U.S. Secretary of Energy from 20012005. We share Spencer Abraham with companies like Occidental Petroleum where he’s the ViceChairman in that company. Attracting big names like Li Kashing, the wealthiest man in Asia, who’s gotten behind us along with Rick Rule of Sprott.
These are all things that have happened in the last three years that have been three of the toughest years the nuclear and uranium industry has had since going back to some of the nuclear problems in the ’80s and ’90s with Three Mile Island and Chernobyl. These have been tough years for this industry. Despite these three tough years, just look at the fundamental progress that UEC is still making. Not sitting idle, just looking at the screens, wondering why uranium prices are going over.
That type of some new shareholders and investors resonates with people. If it didn’t resonate, you wouldn’t see the stock pick up and rally so rapidly as it has over the last two weeks. Again, relative to where it’s been as recent as March, as recent as the end of last year you still realize that we’re still in that depressed valuation range, in that basement valuation range. But we’re making the progress. That’s the way I see things in terms of how things have panned out in the last few months.
Future Money Trends: It’s great, Amir. This interview has really brought to my mind just moving forward even in a downtime. There are definitely some principles people can take away here. I want to give you a quick note on the stock. My father, who’s 60 years old, he bought his very first stock. He has some mutual funds in a 401k, his very first stock he purchased was UEC. Of course, it was only about a month or two ago because he’s always been against doing things outside of his retirement…
I pleaded with him. Anyway, he finally did it. I just think it’s funny. Even though, obviously, he’s had an amazing experience going from about $1 to $1.60, you could say he’s almost had the worst experience. Now, he’s asking me, “Can we just do one of these a month?”
Amir: Maybe we should put my six year old and your father in touch.
Future Money Trends: Yeah.
Amir: They both seem to be very high maintenance.
Future Money Trends: Amir, thank you so much for your time. I really appreciate you taking the time to talk about building businesses, especially in a downtime. If somebody would like to partner with you, where is the best place for them to go learn more about either one of your companies?
Amir: Uranium Energy, that website is uraniumenergy.com. That’s www.uraniumenergy.com. Brazil Resources is www.brazilresources.com.
Future Money Trends: Dang, uraniumenergy.com. I’ve got to say…You know because you’re also a guy who is of the age of the Internet, basically. The Internet has been around our whole lives
Future Money Trends: That is a damn good domain name “uranium energy.” You would think that domain would have been bought up by somebody.
Amir: I was actually quite amazed, eight or nine years ago, that it was available when we got it. I think that is a good domain name. There you go. Add that to the list of important assets the company has.
Future Money Trends: Thank you so much, Amir for your time. You have a good day.
Amir: Thank you Daniel.
