Two issues ago, we awarded our "Mining Persons of the Year" for 2013 to Fission Uranium (TSXV-FCU) president and COO Ross McElroy and chairman and CEO Dev Randhawa. Last week we interviewed McElroy, and this week, Randhawa, on their careers, Fission and the Patterson Lake South uranium discovery in Saskatchewan, and the year ahead.
The Northern Miner: Could you describe your career, and how Fission Uranium fits into it?
Dev Randhawa: It goes back quite a few years. I invested in a company, and it wasn’t going well, so I became a director, then president, taking it over. I was talking to a friend about uranium, and he said you should speak to Rick Rule. And Rick said, “Uranium makes sense: there are very few juniors or people in the sector — Lukas Lundin is one, and he’s pretty smart, so it puts you in good company.” And that’s how we started collecting properties.
I started in uranium back in ’96, and the uranium business was very difficult from 1996 till around 2004. Then one year, with the flood at Cigar Lake and the fire at McArthur River, it was like the James Taylor song “Fire and Rain”, and the price shot up.
In the early years, I wouldn’t have stayed in it without tremendous support from guys like Rick Rule, Bob Bishop, Doug Casey, Bob Quartermain and Mike Halvorson — very smart men of integrity and understanding, who do their homework.
Then uranium took off, and it was a company called Strathmore Minerals. If you remember, there was a lot of talk about the U.S. market, so we split the company to focus on the U.S. And I said, I’ll go with the junior exploration stuff, and call it Fission Energy. We got a free dividend to all the Strathmore shareholders and we started Fission Energy in 2007.
In 2008, the Roughrider zone was found by Hathor in the basin, and we weren’t successful so we made a management change and Jody Dahrouge went to the board. We brought in a guy who was totally dedicated to the project, Ross McElroy, and that was a key change for us, having Ross run the program.
Sure enough, two seasons later, Ross made the discovery of the J zone at our Waterbury Lake uranium joint venture in the basin, and then in November 2012 Ross made the discovery of the Patterson Lake South (PLS) deposit.
Now, at the same time, we had been negotiating with several people to sell the Waterbury asset, and we did. We made the deal in January and finished it in April 2013, selling it to Denison Mines, (TSX: DML; NYSE-MKT: DNN) and we got about $75 million worth of stock, which we then dividended out to our shareholders.
That’s how we got into Fission Uranium, which started in May 2013.
It goes back to failing at it for quite a long time. Saying “uranium” from 1996 to 2004 was a bad word — people thought the industry was done and over with. But when you look at the math, there are so many reactors in the world, and you saw demand going one way and supply going the other.
Maybe it's because I’m an immigrant — I was born in India — that I’m a contrarian by nature. But a lot of the credit and support goes to very smart people like Lukas Lundin and Rick Rule who let us stick it out. And we stuck it out and gained the benefits.
But at the end of the day, it comes down to the execution of the exploration program. That is where I give all credit to Ross and our geophysicist Ray Ashley.
TNM: How do you go about building a technical team like you have at a junior like Fission? What is your philosophy?
DR: Well, it is tough, and it’s worth a couple of bottles of scotch to learn. You go look for people. The other problem was, when uranium was in such a funk, no one really studied it that much.
In Strathmore we started by going after David Miller, who was working at another uranium company, Areva. He wanted to be an entrepreneur and didn’t want to work for a big company. I met him at a uranium conference. You go to a lot of conferences, and you start meeting people.
We joined our forces — there weren’t that many people to pick from, actually. He’d been in the business for 30-40 years, in the good days. And from there we started adding key board members, etc.
I wish I had a better answer but it is a bit of trial and error, and it’s not easy to find a technical team that can work together and put their egos aside. Because in the Athabasca basin, you need both good geologists and good geophysicists that are willing to work together. That’s one thing about Ross: he has got no ego. They are very bright and very hard working, and at it 24-7.
We tried Mr. Dahrouge and it didn’t work. We had to make a change. That’s what you have to do some times, you have to bite the bullet.
There have only been four discoveries made in the basin in the last few years: You’ve got Phoenix, which is Ron Hochstein and Lukas Lundin at Denison; what Alistair McCready and Dale Wallster did at Roughrider; then the other two have been found by Ross and Ray (Waterbury Lake’s J zone and PLS).
If you think of how many companies have been in the basin and how many millions have been spent, it’s a lot of money. But these deposits in the basin are structurally controlled, and they’re only 20-40 metres wide, and very easy to miss. You’re literally 10 metres off and you hit nothing because you miss the structure, and then the next thing you know — boom — you’ve hit.
It’s very tough. Lukas Lundin has said that drilling for uranium in the basin is the best thing in the world and the worst thing in the world, because you have to be so accurate.
TNM: Since 2007, you’ve had so many corporate maneuvers — staking, JVs, spinoffs, sales, acquisitions, offtakes, other financings — how do you decide on the timing, and what assets to buy or sell or keep?
DR: It’s key to have good people on your board, and good bankers. Back in 2007, Peter Grosskopf, who is now the CEO of Sprott Inc., was our banker. The number one rule in business, whether you’re selling donuts or uranium, is listen to your client. And we listen to our investors. That means analysts, bankers.
Back then, remember, Energy Metals got bought by Uranium One, and everything was about the U.S.
Well, no one is ever going to give you any credit for the Canadian assets, so why have them in there? And make it a pure play — investors love pure plays. So we took that out.
The other thing you need to look at is the skill set. The skill set to put something into production that has already been drilled out, like the Roca Honda in New Mexico, is entirely different than looking for structures 200 to 400 metres down. One, you need engineers, and the other, you need dreamers.
Also, when you’re doing exploration in Canada, you’re using flow-through money. Nothing drives away U.K. and U.S. investors more than when you’re using flow-through, because they can’t get the benefit of it, and they see Canadian investors getting cheaper paper. So the first step was to take that out.
2013 has obviously been an insane year, doing two plans of arrangement, and growing this discovery. It’s been a lot of pressure on our audit committees, and on Ross. But our team has held up, and they’re taking it to the next level: come this year we’re going to be doing almost a hundred holes in the winter program, and last year it was 40-something.
Our old partner Alpha Minerals was more conservative and slower. Now, we can kind of go as hard as we want. To us, we feel like we need to go as hard as we can, to get a resource together in 2014.
I have a lot of faith in the technical team. They’ve hit in one-hundred percent in terms of mineralization under the lake. I trust them and there are lots of drill targets, so why wouldn’t you drill?
The reason we do all these transactions, it’s about being in an airplane and talking to people in New York, London, Toronto. You don’t have to be the smartest person in the world, you just have to know who are the smartest people in the world. I know there are a lot of people who are smarter than me at banking and doing deals. I talk to major investors every day, and they tell me what they don’t like, and unfortunately they are very honest [laughs].
TNM: Your typical uranium investor today, what are they looking for, with the price for uranium oxide so low?
DR: Everybody in our stock is a contrarian. You have to be a contrarian to like uranium, or even the entire mining sector these days, it’s so bad. We’re very fortunate to have the one story that’s worked out. I mean it when I say my heart goes out to a lot of people who have lost jobs, and there are a lot of families that are not being fed.
Today, we’re all trying to figure out when Japan is going to go into the market to buy uranium. That is one key. The second is the impact of the pact ending where Russia is no longer sending uranium to the United States.
TNM: Is there a general feeling that all these reactors in Japan are going to come back online?
DR: They have to. They’ve made a commitment. That’s how the guy got voted in. There’s always going to be a pushback, you have to expect that, but they’re going to have the Olympics there, and how can this country stay competitive buying LNG at $13-15 versus the world buying it at $4? They have to compete energywise if they want to be on the ball.
I know the Japanese and they don’t want to lose face over having no power at the Olympics. One of the problems they’ve got is the cost of energy is so high. Both Korea and they don’t have enough of their own natural energy resources, so they have to go nuclear power, and stay with it.
It’s always going to be part of the mix, and the biggest push will be China. They have reactors and are buying projects all over the world to make sure they have offtake.
TNM: You’re well financed for the year. How do you find the right balance between raising money and not diluting shareholders too much in this market?
DR: You always want to have at least two years of cash, that’s the number in my head. And there’s an old saying, raise money when you can, not when you have to. If you have to do it, the bankers will squeeze you for warrants and things like that. So raise money when you’re strong.
Right now would not be a good time for us to raise money. But once we start to drill and the zone is extended, the excitement is there and you have to jump upon it. It’s always tough, especially when you consider that Ross and I, between us, have 10 million shares fully diluted. And we’re all in, we haven’t sold, I even bought more today (Dec. 16).
For us, it’s about maximizing shareholder wealth. And that’s how the takeover happened. We didn’t go looking to take over Alpha, I can assure you that. I was looking forward to a few nice days of golf with Mr. Sprott when their shareholders, a week before, told me, through one of my guys, “Look, as major investors in Alpha we are very disappointed with the performance of the stock, and feel that Ross and Ray must run the program and we don’t want the operatorship switched over.”
So 25% of their shareholders came to me.
TNM: The operatorship would have switched over to them next summer, correct?
DR: Yes, and it’s no knock against Ben and Garrett Ainsworth, please don’t take it that way. But we have 12-13 people on our staff, geologists and geophysicists, a whole team. And I think Alpha has… Garrett. Garrett has even worked for us as an employee, but he’s never been in a management position with us.
TNM: The very first year with Fission as operator at PLS was 2008, is that right?
DR: Yes, when we had it, we started using the technology to find the boulders, then after two years, operatorship switched to them. And then we took it over again last January of 2012. Again, I don’t think it’s a fluke.
I don’t think Ben Ainsworth is a big fan of the geophysics, at least in the management meetings I was in, and we believe it is a key part of finding discoveries, and a big piece was getting Ray Ashley on the ground, looking at the data.
The problem with geophysics is it gives a lot of false signals, and if you haven’t been in the basin long enough, you wind up drilling in the wrong spots.
There’s a layering of the technology, the airborne, etc. And so Ross and Ray took it over and made the discovery.
It’s gone back and forth, and there’s a lot of confusion out there unfortunately over how it was found, but the fact is we took over the operatorship in January of 2012, and the discovery was made on Nov. 5, 2012, that was the news release. That was while Ray and Ross ran the program.
What we have is a couple of guys on the ground out there, who go back and forth. You can’t leave a guy out there at 40 below all the time, so you alternate them every two weeks. They’re employees, and Garrett was one of them, but he wasn’t part of the management. So there’s a lot of myths out there. I think you’ve seen it, and it’s just not true.
We’ve been operator and that’s what part of the takeover was. They came to us and our stock traded at a premium to their stock, and there was a lot of volume in our stock.
Liquidity is very, very important to fund managers, and at times in the summer we were trading 20 million shares at $1 per share and they were trading $2 million worth.
The takeover happened because their shareholders came to us and said, “Please take these guys over.” And at first I said, “No, I don’t think it will work.”
But I met with them. I know the night well, because I broke my leg that night.
I met with their three key shareholders that night, along with our banker, and when I was running home to catch a cab to get ready for a meeting the next morning, I jumped over a puddle I shouldn’t have, and slipped and turned my ankle. The next morning appearing on BNN I kept smiling to hide the pain. I didn’t realize it was broken, I thought it was a sprain.
The key thing is for management and investors to be of the same mind. You don’t always listen to everything every investor says, but you’ve got to listen, and that’s a rule of business.
Institutional people aren’t foolish. They’re going to grind you when you’re trying to do a financing, obviously, but once you’re on the same side of the fence, you work together on what’s the best thing.
As a CEO you’re going to get lots of blame when things are going wrong that you shouldn’t be getting, and maybe too much credit when things are going well. In this situation, I often get too much credit, because the key piece here is the brains of Ray Ashley and Ross McElroy.
My job was to take that, and monetize those assets. My job was to raise the money at the right price with the least dilution possible, and when it was done, to sell it. We sold Waterbury because we’d been on it for five years with the Korean Electric Power Company (Kepco). My job was to say, “Okay, we’ve gone as far as we can, it’s time to sell it to Denison. Denison’s a mining company, not like us.”
We’ve been fortunate with good bankers. Dundee has been fantastic giving us advice. And the more wise people are in the room, the more chance there is of a good decision.
TNM: Can you speak a little about leaving the PLS asset out of the Denison deal? Was that inspired, or lucky, or what was going on there?
DR: My relationship with Lukas Lundin goes far back. In 2003 I sold him a small gold company, with Ron Netolitsky and Mike Halvorson on my board. We were going to do some drilling in the area close to what he was drilling, so he said, “Let me just buy you.” So we sold it to him, and it worked out very well for me and him.
Then there was a time when they needed a lot of money. If you remember, Denison almost went broke in 2008. I went to Kepco and said you should invest in this, at 80 cents or something. And they did. So Lukas always remembered that we’d done good business together, on handshakes.
At Strathmore, we’d been talking about selling out to them, so after a bunch of meetings on Nov. 2, 2012, which was a Friday, I went to Lukas’ office to talk about it again. This was our sixth meeting. We had to get rid of our U.S. assets first, close our flow-though deal and then we met.
We actually agreed on a handshake to sell the entire company to him, including PLS on Nov. 2. Now, we hadn’t made the discovery yet. I sent it to my board, and told them you have my support to sell it as is, but I want cash out and our Peruvian assets left out.
And Lukas said, “Fine, we’ll do the deal.” Because Lukas’ goal is to sell the whole company to a Rio or something, and we had a really good project with Kepco, and Rio was next door. So it made sense for him and for us.
We shook hands, and I got on a plane to Hong Kong, got off, and bang, I got an email: Stop the press — we’ve got a discovery!
And so I said, “Oh, brother.” You know, Lukas is a pretty powerful guy. He’s a nice guy but he’s not the kind of guy you want to phone up and say, “Oh, by the way, the deal’s dead.”
I had to phone Ron up, and say, “We have a problem, and you won’t like it.” And I told him that we can’t sell the whole company because we made a discovery. And the phone goes quiet.
We had a board meeting and the decision was to not go forward with the sale of the company. I phoned Denison up, and said, “Sorry, we can’t do this.” We made the announcement on Monday morning and the stock started going up.
There were two problems. One, the board wouldn’t approve it and two, the market wouldn’t allow it, because already the stock had moved up, and it was going to move up past what they were going to offer us for the whole company. Why would we sell? It doesn’t make sense.
The deal was dead, but we kept talking and Lukas still had an interest in the other assets on the east side of the basin. They put out results, and their Phoenix results had gone up significantly, so their stock went up to $1.35, and he said, “Look if I can use my currency, let’s chat.”
On Jan. 14 we all met and they brought their banker from Haywood, and on the phone, I had Dundee from Toronto.
We kept it simple and said, “Imagine that day, we sell the company still, but if you leave out the cash and Peru, and PLS. What does it look like then?”
PLS was easy to measure because the other half was in Alpha, and the market cap of Alpha was $2.5 million. So all we did was take $2.5 million out of the original deal, and went forward. It wasn’t that complicated. There was a financing in between there, so we took 9% off the market cap of the company, and that’s what it came down to, the $75 million, then multiplied by the premium, and you get the deal.
We sent it to the board and advisors, and there was a bit of a battle on the board to sell out. Finally we made a decision 4-to-1 to sell. And we did the right thing, because when the votes came in, they came in at 99% to sell to Denison. (Dahrouge did not vote in favour of the deal due to his concerns over valuations, and he and Fission are currently involved in a legal dispute.)
An exploration company wants to explore, and Kepco wanted to mine. At some point you have to know what your skill set is.
There’s been a lot of pressure on the company this past year but everyone’s worked extra hard so that we’ve been able to do two plans of arrangement, sell a company for $75 million, and grow what one analyst has called the most interesting exploration project in the world.
The key is it’s so shallow. Lots of other people have high-grade deposits, but this is so shallow and so it’s a trucking operation.
That’s why we feel such a pressure to develop this as fast as we can before someone makes an offer for us. I wouldn’t think it would happen before we had a 43-101 done. But the market gave us $13 million at $1.50 and the stock is at $1.01 today.
We got lots of money at a high price and we are going to spend a lot of it this winter. Our goal is to show that it’s one zone, that’s it’s a rope of uranium and not a bunch of pods.
TNM: When could that resource be calculated, do you reckon?
DR: We’re going to have a winter program and then a summer program. There will be a gap in there, so we hope to have a 43-101 in the fall, if we’re still around.
TNM: When do you sell an asset like this? Do you use Hathor as a template?
DR: Oh, absolutely. I think you have to look at that. It’s funny, after they bought the 10% in the project from Terra Ventures to have 100%, boom, there was a hostile takeover bid.
You don’t really control that process. My biggest fear is that there isn’t going to be an auction. One potential buyer is a bid; two or more is an auction. What caused the Hathor offer price to go up so well was an auction, and it happened after Fukushima.
To me, the goal here is to get interest, and we’re doing that. I’m going to be meeting people in Japan at the end of January, then China, Beijing. There’s a group out of Russia now in Toronto. To meet with everybody, and make sure they’re up-to-speed on the geology, how the discovery was made, what’s going to continue to make it wide open.
So if someone makes a hostile bid, at least three or four other people around the world go, “Okay, I’ve done my homework.” They may not want to make a bid, but my job is to go out there and educate people on this deposit. Ross is out there making sure it’s drilled properly and maximizing the potential of it.
TNM: What about this new Canada-European Union free trade deal? Does that open up more interest from a Rio Tinto or an Areva?
DR: Absolutely. I think it will. It simply did what everybody expected. At the federal level we signed a pact to sell uranium directly to China and India, so it was natural to have the next step be Europe.
Whether we’re ready to sell (Fission) to a Chinese group, I don’t know. From what I can tell, I don’t see a problem with that, but until it happens... I think Rio is very happy that those rules have changed. ARMZ of Russia, which bought Uranium One, has their head office in Toronto now, even if their shareholders may be all over the world. They’re giving a signal that they may be interested in more than their Russian assets.
TNM: How many people would be interested in a deposit like this, given that it’s open-pittable?
DR: Oh, about seven. But we do know, and it’s very shocking to me, that we have a non-uranium company interested, saying if you do a financing, we’re interested. It would shock the world who’s coming in, like Barrick going into copper shocked people. People should stick to their knitting, but at the end of the day, open-pit is open-pit.
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