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Global Atomic: Several Misconceptions, Financing/ Production Likely to be Delayed

DISCLAIMER: Any written content contained herein should be viewed strictly as analysis & opinion and not in any way as investment advice. No compensation was received for this report. Visitors to this site are encouraged to conduct their own due diligence.

With the year barely half over, 2023 has proven to be a volatile one for Global Atomic (GLO) due to a series of systemic events, which in hindsight are part of the territory when investing on the African continent. As a result of a court ordered injunction against GLO's subsidiary SOMIDA (subsequently overturned by appeal in February) and last week's military coup by the Presidential Guard, the net effect will ultimately be a delay in Dasa development and with it, an eventual delay in production. Though initial Phase 1 uranium production was expected in early 2025, we see this timeframe as no longer being achievable due to the prohibitive financing environment given the political turmoil currently playing out.

Recall that the February court injunction against 80% owned subsidiary SOMIDA (Société Minere de DASA S.A) came in the midst of a live C$100M bought deal financing which was priced at C$3.50 per unit. Though an appeals court ruled against injunction shortly thereafter, the damage was done as the offering was pulled. A subsequent C$56M financing (upsized) was closed on March 17 however the much lower amount was concluded at an even more dilutive C$3.00 per unit. The company remains in good shape with most of the amount raised still in treasury (as per Q1/2023). Moreover, management has stated on July 31 that work is continuing unimpeded - recent progress highlights include 600m of underground development, preparatory work for the 80m Alimak raise along with the arrival of additional mining equipment and progress with assorted infrastructure (electrical, ventilation, plumbing). Though the Dasa Project remains a solid long-term prospect (2023 PEA metrics include a Phase 1 LOM of 13 yrs, ~44M lbs produced with an estimated after-tax IRR of 44% at $50/lb LT), the total initial capital needed was earmarked at $208M. Given the uncertainty still enveloping the country, it is hard to envision the next financing round coming any time soon, let along at the previously envisioned debt/equity terms. Africa is a tough jurisdiction to invest in - just looking at the TSX in exclusivity, African projects (Global Atomic (GLO), GoviEx Uranium (GXU) and Forsys Metals (FSY)) have underperformed their uranium counterparts with North American projects:

The trend of African political coups has been gaining strength of late with Mali and Burkina Faso also having experience regime change since 2020. That said, investing on the African continent has always necessitated a certain understanding of the regional players (and with it, expectations for theft, strikes and military led coups). There are certain misconceptions still permeating around Niger and its uranium mining outlook. Security and political ramifications aside, in order to set the record straight, we highlight two main points worth remembering for context with regards to Niger and mining. Setting the record straight:

1) Niger is NOT a mining powerhouse. Niger was a top 4 uranium producer in 2013 when its ~11.6M lbs of produced uranium ranked just behind heavyweights such as Kazakhstan, Canada and Australia. Due to mine closures and under-investment, FY/2022 uranium production slipped to ~5.2M lbs (representing 3.7% of global primary supply), ranking the country in seventh place on the global production stage. By comparison, gold production of ~35t in 2022 was the larger mining export from Niger, however in context to neighboring countries, that amount is relatively small, representing a mere 1% of global gold production. In any case, the uranium production picture gets worse since it has been widely expected that by 2030, Niger will have ZERO uranium production, as per currently operating mines. All of last year's production came from the open-pit SOMAIR mine which is 63.4% owned by French nuclear conglomerate Orano (the balance being state owned).

What about the other major uranium mining operations in Niger ?

COMINAK: Orano's majority owned COMINAK mine ended operations in 2021 after having produced nearly 200M lbs since 1978.

SOMINA: Production ended in 2010. SOMINA was subsequently place on C&M in 2015. Studies are currently being undertaken to assess the possibility for a re-start.

Dasa: Global Atomic's Dasa project was the most realistic uranium mine expected to be developed and taken into production in 2025. Given the current political turmoil, a 2025 start is extremely unlikely to take place.

Imouraren: Development was suspended in 2015. Orano (66.65% owner) along with the JV partners are are looking into implementing ISR recovery methods for production. There is no current development timeline - the project has not entirely been a priority for Orano.

2) France HAS been diversifying away from African uranium supply. It's well known that the majority of uranium mined from Niger went to EU based utilities. Though France has a colonial history in much of west Africa (along with a common language), the French have been well aware of the limited LOM uranium prospects in Niger with an eye to 2030. For this reason Orano has been much more involved in the Athabasca Basin instead. Kazakhstan aside, Orano has long been involved in the Athabasca Basin with 35 exploration projects and 19 JVs. Among the most influential partnerships, a 40.45% ownership in the Cigar Lake operation is done in conjunction with Cameco (CCJ) while the McClean Lake JV is done in conjunction with Denison Mines (77.5% Orano, 22.5% Denison Mines (DNN)). The thought that Niger is still entirely critical for France's LT uranium needs is hardly the case. This point has been highlighted as Global Atomic began signing LT supply contracts earlier this year. To date, two supply contracts have been signed, encompassing a combined 4.5M lbs over a multi year window beginning in 2025. These two contracts were signed with North American utilities, not French utilities.

When it comes to mining, Niger is hardly what most people think when it comes to scale and scope of mining. This point is most telling when factoring in the long term development prospects. Secondly, anyone thinking that the French will move in to secure the perceived resources needed are mistaken. There wasn't much French action in Burkina Faso or Mali since 2020, despite their respective coups. France will not save the day, they have little long term need to. If at all any western intervention it will likely be driven by security reasons to counter the encroachment of Jihadists or Wagner - not to secure uranium supplies. We're happy to keep out.


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