RSD at Beaver Creek Interview Series: Dennis Higgs

October 1, 2019

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Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is venture capitalist Mr. Dennis Higgs. Dennis, how the heck are you?

Dennis Higgs: I'm doing well, thank you.

Gerardo Del Real: For those not familiar with you, can you share a little bit about your background?

Dennis Higgs: Sure. Very briefly, I started a company called your Uranerz Energy back in 2005 with a specific objective of building a uranium mining company in the United States.

Gerardo Del Real: That was good timing.

Dennis Higgs: It was very good timing. Uranium was just starting to pick up, and by 2007 we were listed on what at that time was called the American Stock Exchange. We were one of the few uranium companies that was listed on a national stock exchange in the United States, so we did very well with that.

We were able to raise hundreds of millions of dollars to put a mine in production over here. It took 10 years, of course, to get our permits and get everything up and running. Ultimately, the company was taken over by Energy Fuels (TSX: EFR). So I am now a director of Energy Fuels and Energy Fuels is the largest uranium producer in America. So it was good experience.

Gerardo Del Real: Now, when you say very well, can you give us a brief glimpse into how well? I know the answer, of course.

Dennis Higgs: Oh, so we started Uranerz Energy. The first financing, believe it or not, was at $0.10 cents U.S. a share and its frenzy peak at one time of almost $8.

Gerardo Del Real: Yep.

Dennis Higgs: It had options traded on the Chicago Options Board Exchange. So we had a lot of fun with that and that's what allows us to raise the money to proceed and build the company. But ultimately it was taken over for about $175 million U.S. By the time the uranium had seen its highs and lows and somewhere in between when Fukushima and everything else occurred. So yeah, it was a good experience.

Gerardo Del Real: I mentioned your timing was good.

Dennis Higgs: Yes.

Gerardo Del Real: That's what happens when you get into the uranium space and it's still in a bear market and you're able to ride that up and out the through a bull market. Right?

Dennis Higgs: Yes.

Gerardo Del Real: We're in a similar setup right now.

Dennis Higgs: Very much so.

Gerardo Del Real: Tell me about that.

Dennis Higgs: Well, uranium has been in the doldrums since the Fukushima incident in Japan. For those that aren't aware, that was an earthquake offshore that created a tsunami that basically wiped out a nuclear facility and caused a small meltdown, I guess, if you will. It basically created a lot of fear and panic in the nuclear industry in certain countries. Germany for example, decided to shut down all their nuclear facilities and Japan has been very slow.

They were the world's third largest nuclear producer of nuclear power at that time and they've shut down pretty much all of them. I think 8 of them have come back online out of originally 52 or 53. So it's been a slow recovery for some of the nuclear facilities. But having said that, there's a very large number of nuclear facilities under construction right now, especially in China, Asia, Russia, certain countries. So nuclear is not going away.

Right now, there's 97 nuclear power units in the United States, producing power for 20% of the American homes. Uranium is still required. We are in a bear market, but it's going to turn, and I'm very confident about that.

Gerardo Del Real: We're at a very interesting point, because obviously the whispers from the nuclear working group – which are due to give out some recommendations here, I believe next month – the whispers are getting a little bit louder. And what we're starting to hear is there's the possibility that the United States will buy directly from U.S.-based producers. You mentioned Energy Fuels earlier, which of course, has high leverage to the U.S.

You're very well connected within the uranium space. Can you speak to some of the whispers? And again, I want to make sure that we all are very clear. These are whispers that we're hearing.

Dennis Higgs: Okay. Just very briefly, the Section 232 is what this is about. Back in early 2018, Energy Fuels and UR Energy filed a Section 232 petition. The objective of that was to try and get either a quota or some kind of a system to protect the domestic uranium production in the United States.

Gerardo Del Real: And revive it. This was a once booming industry that is now nearly nonexistent in the U.S.

Dennis Higgs: Exactly. At that time, the argument was that a very large percentage of America's uranium used for nuclear fuel was being imported from certain countries that are not necessarily friendly to the United States, but also are state sponsored. So Russia, Kazakhstan, Uzbekistan, China. So if you're getting your uranium imports from those state-run or state-helped facilities, the American independent businesses have it very tough to compete.

So the Section 232 petition was originally filed to try and help either create a quota or some method for the domestic uranium producers to be able to run their business and get back to work. So that's the backdrop. The Department of Commerce put their report out in April of 2019 with its recommendations and it was expected that they were going to give some kind of a quota or something to the domestic uranium producers in America. President Trump disagreed with that recommendation, so what he did, he firmly put together the United States nuclear fuel working group, and that was a basically 13 members of secretaries of all the top departments in the United States.

Gerardo Del Real: Sure.

Dennis Higgs: That group has 90 days then – until October 10th now – to come up with recommendations to somehow support the industry and help get it back on its feet.

Gerardo Del Real: Widely expected we're going to get something. If it was going to be a no, that would have been easy to do back in July.

Dennis Higgs: Right.

Gerardo Del Real: The fact that this group was brought together to look at it more thoroughly leads many of us that speculate in this space to speculate.

Dennis Higgs: To speculate, right, sure. There's 13 members on this nuclear fuel working – actually it was 13 members. I understand, I think it was Bolton who was fired yesterday?

Gerardo Del Real: According to him, he resgined.

Dennis Higgs: He was co-chair of that nuclear fuel working group, so I'm not sure how it's going to get resolved. But of the 13 members, I know that Energy Fuels, for example, is continuing to meet with them, has met with at least 11 of those members presenting the case, presenting the argument and there is some discussion. I think Paul Goranson, COO of Energy Fuels, was interviewed and mentioned that there might be, from the Cold War era, 1950s era, where the U.S. government might buy uranium directly from the producers and/or fund the nuclear power companies to buy U.S. uranium.

So there is that rumor out there. What we do know from all these meetings is that the President has said he will take bold action. What we don't know is what that bold action might mean, and it might not just be uranium mining, it might be the entire nuclear fuel cycle from mining to conversion enrichment and fuel production. So, we're still not sure what's going to come, but he's got til October 10th to make that decision.

I understand the report will be written sometime next week and then of course it goes for review and goes through the proper channels, and we expect to hear something on October 10th.

Gerardo Del Real: What makes the whispers so compelling is there's not a lot of companies that stand to benefit from this, so you can pick four or five companies.

Dennis Higgs: Yes.

Gerardo Del Real: And they're all going to benefit disproportionately to the upside.

Dennis Higgs: Yes.

Gerardo Del Real: If the whispers indeed come to pass.

Dennis Higgs: Yes. So, if you look at the uranium price of all these companies, the U.S. uranium producers, they all went for a big plunge on or about July 12th.

Gerardo Del Real: Sure, 40-50% shaven off the market caps.

Dennis Higgs: Big time. Actually, interestingly enough, that discussion has come up also in the nuclear field working group. So they're aware that there was some serious economic disruption, yes. So, I think that companies that are going to benefit the most. Obviously Energy Fuels, they're the largest uranium producer in the United States. They're going to be a direct beneficial of this, any decision that might be made in favor of the uranium producers.

But there's some smaller companies that might do very well, and one that I'm a shareholder of I should tell you, is this Azarga Uranium (TSX: AZZ)(OTC: AZZUF), for example. It's a smaller uranium company in that its market cap is small, but it has one of the best undeveloped ISR uranium projects in the United States. It's got 18+ million pounds. It's of a high grade for ISR mining, 0.1%, compared to some of the U.S. ISR uranium mines of half that grade. So it's got a good grade. It's in what we think is a good jurisdiction. They haven't got their final permits issued yet. We're expecting to hear something on that by the end of this year. So they've got a new PEA coming out. They've got the October 10th potential upside of a Trump decision. They've got a potential finalization of some of their permits by the end of the year. So they've got a lot of good things going for them in their small company in market cap. So that one I think has very significant upside.

Gerardo Del Real: That's Azarga Uranium?

Dennis Higgs: Yes. AZZ on Toronto, or AZZUF in the US.

Gerardo Del Real: Fantastic. Dennis, anything else you want to add?

Dennis Higgs: What would you like to know?

Gerardo Del Real: Give me one other company outside of Energy Fuels and Azarga Uranium.

Dennis Higgs: Well, UR Energy, of course, is one of the petitioners for the Section 232. There's UEC. These are U.S. domestic uranium production companies, so they should all benefit from any decision that's favorable to uranium miners in United States.

Gerardo Del Real: Fantastic. Dennis, a pleasure as always. Thank you.

Dennis Higgs: Thanks, Gerardo.

Gerardo Del Real: Dennis Higgs.

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