Update On Global Atomic (GLO)

Tough luck, but a silver lining

I sold all my shares of GLO today on news that there has been a military coup in Niger and that the government of Mohamed Bazoum has been stripped of power. Unfortunately this is a risk that one has to contend with when buying stocks in unstable foreign jurisdictions. The timing of this coup is rather unfortunate as the company was in final stages of securing bank financing for the initial mine capex. With all the political uncertainty now introduced into the picture, it is likely that the financing discussions will have to be paused. I won’t be buying back the shares until there is clarity on who will be in power over the long-term.

If the military manages to retain power, it could allow Russia to gain a stronger influence over the country. Juntas in neighboring Mali and Burkina Faso have grown closer to Russia since they took charge, in 2020 and 2022 respectively, and cut ties with traditional Western allies. It will be important to see what the Western powers (esp US and France) are willing to do to restore democracy. Under Bazoum, Niger had become one of the few pro-Western countries in the Sahel region in Africa to stand up to militia and terrorist activities. France has a military presence in the country for that reason and to secure its uranium supplies.

CBS news reported the following:

U.S. Secretary of State Antony Blinken said he had spoken to Bazoum to offer Washington's support, while U.N. Secretary-General Antonio Guterres said he "strongly condemns the unconstitutional change in government" in Niger.

U.S. National Security Advisor Jake Sullivan called Niger a "critical partner" of the U.S. and condemned any impediments to the functioning of the country's democratically elected government. 

"We specifically urge elements of the presidential guard to release President Bazoum from detention and refrain from violence," Sullivan said. 

National Security Council spokesperson John Kirby said he couldn't provide an estimate of the number of Americans currently in Niger, but he advised U.S. nationals there to use caution.

For GLO shareholders the worst outcome is the country descending into chaos in the coming weeks and months, and mine development activities halting completely. There is also the risk that a military government could forcefully take over the company’s mining assets (though that would be suicidal from the standpoint of attracting future foreign investment). These remain however, low probability outcomes. There have been no major uranium mining interruptions in Niger over the past 50 years, despite countless regime changes.

A more favorable outcome would be a return to stability under military rule and the army honoring its contractual obligations to the company. That way GLO could continue building the mine, but the stock would trade at a discount to reflect the unfavorable political environment and potential Russian/Chinese influence (similar to Kazatomprom). The best outcome obviously would be a return to Western-backed democratic rule (unlikely to happen without foreign intervention).

The silver lining for the uranium sector is that if Dasa isn’t developed, or if Dasa falls into Russian hands, this further exacerbates the supply / demand deficit for Western utilities by 5-6mm lbs/ year. This would mean more upward pressure on uranium spot prices and increased demand for Western-sourced lbs. Western producers like Cameco and developers like NexGen and Denison would be poised to benefit from this.