GTR commencing uranium drilling “any day now”. Granted membership to “Uranium Producers of America”

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 30,875,000 GTR shares and 1,833,100 GTR Options at the time of publishing this article. The Company has been engaged by GTR to share our commentary on the progress of our Investment in GTR over time.

In the last 12 months, nuclear energy has gone from “unloved” to desperately needed...

We have seen:

1. Nuclear energy declared as “clean” at COP 28 with 22 different countries declaring that they would look to triple nuclear energy output by 2050.
2. The US passed a bill banning Russian-sourced uranium products, AND
3. The US government has started investing billions of dollars in reviving its domestic nuclear energy and uranium mining industry. Just recently the US committed to investing US$2.7BN in domestic enriched uranium supply.
4. Australian Liberal party marking “nuclear energy” as the key policy to run for reelection.

As for the uranium price - it has taken off, hitting 10+ years highs.

Hopefully we soon see the renewed interest in uranium trickle down to some of the uranium juniors.

That’s why we hold GTi Energy (ASX:GTR) as one of our US uranium exposures.

We like uranium, especially in the US because it is home to the world’s biggest nuclear reactor fleet.

Political momentum for nuclear power in the US is strong too...

The U.S. government has introduced several bills and billions of dollars in funding to support its nuclear industry, including $6 billion to maintain and upgrade existing nuclear power plants and $4.3 billion to wean itself off Russian uranium supplies.

And in May the US government banned Russian imports of uranium.

(and Russia controls ~50% of the world’s supply of enriched uranium - Source)

All of this puts the focus squarely on the US state of Wyoming, which is the traditional heartland of US uranium production, where mine re-starts are underway.

GTR has three projects all in Wyoming which was once the biggest uranium producing state in the USA.

And today GTR became a member of the Uranium Producers Of America (UPA) the peak industry lobbying and representative body for the uranium industry in the US.

GTR joins the group with some of the bigger players in Wyoming like $3.5BN Uranium Energy Corp, $1.4BN Energy Fuels & $579M Ur-Energy:

(Source)

We see GTR’s entry into this organisation as external industry validation of the importance of GTR’s resources, and their ability to meaningfully contribute to the US uranium supply chain.

But it’s GTR’s upcoming drilling and results that will be of more interest to the market.

Across its three projects, GTR has JORC uranium resources totalling ~7.37mlbs.

And GTR is days away from drilling its most advanced project - Lo Herma.

The goal for the program is to upgrade GTR’s resource base so the company can start feasibility studies.

GTR just raised $2.25m at 0.45c per share and is now raising another $2.2M through a rights issue.

The rights issue is partially underwritten for $1.6M so GTR will be getting $1.6M of the funds no matter what.

We participated in the recent GTR placement and we plan on taking up our full rights in the rights offer.

We have been holding GTR for over 4 years now and the price has come down during that time - we generally try to average down in bear market capital raisings like this one in anticipation of a sentiment turn.

Our Average Entry Price for GTR is currently around ~1.35c - it’s now trading at around 0.4c.

So, GTR will be going into this drill program with more than enough cash to see the company through drilling and hopefully deliver some news to get the market excited again.

We are hoping that GTR delivers intercepts with grades above its current resources (5.71 Mlbs U3O8 at average 630ppm) and does so at a time when the uranium price is running again.

Any hint of strong drill results should be enough to get the market attention on the resource upgrade GTR is planning on delivering post-drilling.

Macro sentiment for “nuclear” to drive interest in small cap explorers?

In previous notes we have spoken about how macro thematics can have a big influence on company share price performance.

Particularly at the smaller end of the market.

When stars align and a macro thematic goes mainstream, companies with exposure usually see their share prices move higher.

This is because investors (both retail and institutional) want to buy stocks that are leveraged to high-potential commodities with forecast upside for the future...

As well, investors already in these stocks are reluctant to sell shares in companies with good projects and a good macro theme and thus the share prices move up.

Sometimes these can reach nosebleed levels, where companies are materially overvalued and at the top of the hype cycle.

Think tech in the early 2000s or lithium in 2021.

We think that uranium will one day become a “hot” macro thematic because of its exposure to a megatrend... AI.

AI, and the vast amounts of clean energy needed to power it.

AI has one key limiting factor and that is computing power.

In order for AI to go mainstream the world needs more computer chips, more data centres and most importantly more clean electricity supply...

Now it’s not as long a bow as it sounds, even republican US presidential candidate Donald Trump acknowledges that AI will “need electricity at levels nobody has ever experienced before”.

“The amount of electricity we need is even double or triple what we have right now”

He also questions renewables like wind power being able to provide enough stable electricity to do the job.

(Source)

Over the next three years Morgan Stanly anticipates that power consumed by Generative AI is set to grow 5x:

(Source)

According to the International Energy Agency’s current forecasts by 2026 AI and data centres could be responsible for over 1000 TWh of power each year.

For context, that would be around 3-4% of total global power usage.

If this number continues to climb at the current rate it is additional power that will need to be consumed, which was likely not accounted for in global emissions reduction targets.

Ultimately, for the world to reach net zero emissions targets AND meet the growing power demands from AI, a reliable clean energy solution will need to be resolved.

And we think the answer lies in nuclear power.

The CEO of GTR’s neighbour Uranium Energy Corp’s, Amir Adnani summarises the uranium-AI synergy perfectly in the video we will link below...

Check out Amir’s comments on all of this starting at 6:06 in the following video:

(Source)

In the video he notes that the current grid structure can’t keep up with future demand for electricity, especially with the increase in AI uptake worldwide.

He talks about how the world needs more data centres to power the AI revolution which means there will be even more demand for clean electricity.

He also talks about how companies like Microsoft, Amazon, and Google are considering building small modular reactors next to data centres.

(Source)

(Source)

He also discusses Terra Power (owned by Warren Buffet and Bill Gates) which is building a nuclear plant in Wyoming.

So the USA is going through a nuclear renaissance AND spending trillions on electricity hungry AI...

Why we think GTR is in the right place at the right time

Reason #1 - GTR’s projects are in the USA

The USA is home to the world’s largest nuclear reactor fleet and relies on nuclear power for ~20% of the country's electricity generation capacity.

That means 1/5th of the US energy grid is reliant on the US having access to a stable supply of uranium domestically.

Despite this, the US is currently reliant on imports for ~95% of its needs.

Now with the US banning Russian uranium products the need to get the domestic uranium industry going is as high as it has ever been.

As demand for uranium increases and the US is forced to localise its nuclear supply chain, we think the US is the place to be for uranium juniors like GTR.

Reason #2 - GTR’s project sits in the uranium capital of the US

GTR’s resources all sit within ~80 km of five permitted ISR uranium processing facilities with heaps of idle capacity to process more feedstock.

These plants are owned by uranium majors with deep pockets - think A$3.5BN Uranium Energy Corp and A$30BN Cameco.

Being in a part of the world where there is a history of uranium production AND the associated infrastructure needed to start producing again is a huge win for GTR.

GTR can go out and keep drilling its project, increasing its resource and as long as the plants around its project continue ramping up production, feedstock that is the closest to the plants will become more and more valuable.

The plant owners can then look to operate the processing plants using a “Hub and Spoke model” where they buy feedstock from the companies in the area and process it through their facilities.

The “Hub and Spoke” model is something GTR’s neighbour Uranium Energy Corp’s (UEC) neighbour has been talking about for years now.

(Source)

UEC has previously done deals backing up that strategy too...

They bought and paid US$134M for Uranium One in 2021 back when the uranium price was trading at ~US$42 per lb.

We think that acquisitions would make even more sense with uranium prices closer to US$100/lb.

As long as GTR’s resource keeps on growing then we would hope interest from a corporate perspective would increase.

Here is what the strategy for GTR looks like:

Reason #3 - GTR’s projects host ISR uranium resources.

GTR has ISR mining projects.

ISR stands for “In Situ Recovery” which is a slightly different way of mining an orebody versus the typical open-pit or underground methods we are used to here in Australia.

ISR uranium mines are among the lowest cost from both a CAPEX and OPEX perspective, AND have a far lower environmental impact versus conventional hard rock mining.

ISR projects are a lot more like oil & gas projects where acid is pumped underground, dissolving a resource and then pumped back to surface for processing.

Below is a visual representation of the differences (left is a conventional hard rock uranium mine and on the right an ISR mine).

The significance of GTR’s projects being ISR deposits is that GTR’s projects sit ~16km away from Cameco’s Smith Ranch-Highland plant (the USA’s biggest ISR uranium production facility).

AND interestingly, GTR just appointed the ex-head of Cameco Australia - Simon Williamson - as a new non-executive director...

GTR has the right geology and now has a team that understands that geology & the way the majors in Wyoming operate.

We are hoping that a combination of the reasons above and GTR growing its resource contribute to the company achieving our Big Bet which is as follows:

Our GTR Big Bet:

“Prove out a large resource base in the “uranium capital” of the USA and generate offtake or acquisition interest as the USA moves to secure local uranium supply”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done, many risks involved - just some of which we list in our GTR Investment Memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

How GTR’s upcoming drilling fits into our Investment Memo:

After yesterday’s announcement, GTR has laid out its drill targets.

For early stage exploration/definition companies like GTR, drilling is like the season finale where all of the work comes together and value is added to the project.

How much value is added to the project depends on the drill results.

There is always a chance drilling will not find uranium, or not find enough uranium to significantly upgrade GTR’s JORC resource.

That is why we have highlighted “exploration risk” as one of the key risks for GTR in this pivotal time for the company.

We want to see GTR commence drilling in late July or early August.

Memo Objective #1: Drilling at first Wyoming Project - Lo Herma
We want to see GTR define drill targets and then drill its most advanced Lo Herma uranium project in Wyoming. We want GTR to upgrade its existing 5.71m lb JORC resource for the project.’

Milestones
✅ Geophysics/Geochemical surveys
✅ Permitting/Planning
✅ Define drill targets
🔲 Drilling started
🔲 Drilling results

Source: “What we want to see GTR deliver” section GTR Investment Memo 4th August 2023

Exploration Risk
GTR is still drilling exploration targets to grow its in-ground uranium resource. This may or may not return any uranium mineralisation. Exploration drilling that does not lead to economic uranium resources may occur.

Ultimately, GTR’s current resource is not considered commercial at this stage, so it will need to continue to discover more uranium to grow the value of its assets.

Source: “What could go wrong” section GTR Investment Memo 4th August 2023

The ultimate objective from this drilling campaign is to increase GTR’s global resource and commence feasibility studies.

GTR confirmed in its announcement yesterday that this was the strategy once the drilling campaign was complete.

(Source)

If GTR finds enough uranium from this upcoming drill program it will go a long way towards advancing our third memo objective “increase global resource base and start feasibility studies”.

Memo Objective #3: Increase global resource base and start feasibility studies
Ultimately, we want to see GTR increase its total in-ground resource base and then proceed with one of its projects to the feasibility study stage.

Milestones
🔲 Resource upgrade commenced
🔲 Resource upgrade completed
🔲 Feasibility study commenced

Source: “What we want to see GTR deliver” section GTR Investment Memo 4th August 2023

GTR recently raised $2.25M at 0.45c per share via a placement which takes away a large part of the funding risk in the short term.

The only thing to keep in mind now is the current rights issue GTR is running.

Typically rights issues put a bit of a cap on a company’s share price until the close date with shareholders being given an opportunity to sell shares on market and buy back through their rights entitlement.

(usually this happens if the share price of a company is trading above the rights issue price)

In GTR’s case that means that if the share price goes above 0.45c (the rights issue price) there could be some selling pressure until the rights issue closes on the 9th of September.

In the long run however, the rights issue lowers funding risk.

Funding Risk
GTR is a junior explorer with no revenues to fund exploration and ongoing costs. This means the company is reliant on capital raises to fund exploration programs.

Assuming no JV partner appears, GTR will need to come to the market and raise additional capital from investors leading to dilution for existing shareholders if raises are done at lower prices

Source: “What could go wrong” section GTR Investment Memo 4th August 2023

Our GTR Investment Memo

You can read our Investment Memo in the link below. This memo provides a short, high-level summary of our reasons for Investing. We use this memo to track the progress of all our Investments over time.

In our GTR Investment Memo, you can find the following:

• What does GTR do?
• The macro theme for GTR
• Our GTR Big Bet
• What we want to see GTR achieve
• Why we are Invested in GTR
• The key risks to our Investment Thesis
• Our Investment Plan