Nuclear Power and Critical Materials: A Post-Election Outlook

December 6, 2024 | 14 mins 33 secs

What’s the potential impact of the incoming Trump administration on nuclear power, clean energy and critical materials? Thalia Hayden of @etfguide talks with John Ciampaglia about what potential changes may be on the horizon for U.S. energy policies and some strategies for investment portfolios.

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Video Transcript

Thalia Hayden: Coming up on Shifting Energy, how will the incoming Trump administration influence and change U.S. energy policies? What does it mean for the nuclear energy sector? And how can investors and advisors be prepared? Stick around for answers.

Welcome to Shifting Energy. I'm Thalia Hayden with ETF Guide. We're so glad to have you with us. Today, we're diving into the potential impact of the incoming Trump administration on the nuclear power industry sector. We'll also examine what other potential changes might be on the horizon to U.S. energy policies. Then, we'll connect the dots for you with some actionable ETF strategies for your investment portfolio. Joining us now is John Ciampaglia, CEO at Sprott Asset Management. Hi John. It’s great to see you again. Welcome back.

John Ciampaglia: Thanks for having me back. Good to see you.

Thalia Hayden: Let's get started. The 2022 Inflation Reduction Act, also known as the IRA, contains hundreds of billions of dollars in subsidies for clean energy and is billed as outgoing President Joe Biden's signature law to combat climate change. How might the incoming Trump administration and Republican-led Congress impact the IRA and the nuclear energy sector?

John Ciampaglia: It’s a great question. Everybody’s trying to figure out exactly what parts of the IRA may be tweaked. I think it’s important to take a step back and reiterate that the IRA was very much supported from a bipartisan perspective. The legislation came about with support from both sides of the aisle. More importantly, I think many of the incentives, whether investment tax credits or production tax credits, subsidies, et cetera, were designed to crowd in public capital from public capital markets. And that was really the government signaling that they wanted to basically share in some of the risks around some of these industries, new investments, manufacturing, and whatnot. And I think it’s important to note that the large majority of large-scale projects that have been announced largely in part because of incentives through the Inflation Reduction Act have actually been in red states.

I know there’s this knee-jerk reaction that if it’s clean and green, it’s going to be a target of the incoming administration. But I think if you go down to the state level where these dollars are flowing, there will be tremendous resistance to curtailing those investments because they have created a ton of jobs and are expected to create many, many more. So yes, there probably will be some tweaks for sure. The electric vehicle credit is obviously at threat of being reduced or eliminated. Still, I think the guts of it, which are supporting massive investment in the reshoring of many supply chains that I think the incoming administration also deems to be of national security interest, will continue to receive that government assistance.

Thalia Hayden: Beyond domestic policies, international politics is a factor in supply and demand. According to news reports, Russia has imposed restrictions on the export of enriched uranium to the U.S. Now, this has huge implications for the uranium market. Can you break this down for us, John?

John Ciampaglia: This has been an ongoing saga for the last two and a half years, unfortunately, since the invasion of Ukraine by Russia, where everybody is sanctioning Russia. One of the things that have not been subject to any sanctions up until recently has been enriched uranium. Enriched uranium is taking uranium in its natural state and increasing its percentage of the fissile isotope U-235, which you need to create this chain reaction. And Russia is a big provider of this enrichment service globally. They do this for many of the nuclear power stations that they build in many different countries, and they also supply utilities in the Western world in Europe and the U.S. with this enrichment service. Back in August, the U.S. made a law that said importing enriched Russian uranium would be banned. That came into effect in August, but a waiver process would grant a company the ability to ask the Department of Energy for a waiver against the ban because it couldn't find an alternative supplier. Some of those waivers have been given out.

But what was interesting to us is that although the hard ban does not come into effect until January 1, 2028, the Department of Energy has only given out waivers for 2024 and 2025, not the full period. And I think the Russians have clearly picked up on the fact that this waiver process is not going to be for three-plus years and that the writing is on the wall. What we saw last week was basically retaliatory action by the Russians that said, well, if you are going to ban us, we’re going to ban you. This obviously has an immediate impact on the nuclear fuel supply chain because the U.S. is still in the process of building additional capacity on home soil as well, and many other Western countries are doing the exact same thing, which is let's build our own enrichment capacity to wean ourselves off of Russia. So the big geopolitical chess game that’s going on right now is whether the Russians will cut everybody off before that new capacity is operational sometime between 2027 and beyond. It’s a little bit of a retaliatory tit-for-tat move, and it is having an impact on the sector. We've seen the stocks in the sector rally on the news; the price of uranium went up about $4 a pound to $82 in a single day. It is definitely getting the market's attention.

Thalia Hayden: That's true. Now, I'm switching gears a bit. Sprott recently published a research piece on its website, Sprott ETFs.com. It's called Big Tech Targets Nuclear Energy to Support their AI Ambitions. Microsoft, Google and Amazon are making a big splash in nuclear energy, and we've never seen anything like this. So why are they doing this, and how will it potentially reshape energy markets?

John Ciampaglia: This is a fascinating development, and it's really about the AI race, and the U.S. clearly wants to be a leader. China does, too. The U.S. clearly has an advantage right now because it has the technology and the big tech companies behind it, but it also has abundant, low-cost energy. And the reason why that's important is that these AI data centers specifically are very electricity intensive. Goldman Sachs recently published a research report that indicated that doing an AI-related query can be up to 10 times more energy-intensive than an alternative data center query, like using Google search or doing something in the cloud. Everybody has realized that you not only need the technology, but you need clean and firm power: clean because many of these tech companies have their own net zero or carbon neutral goals and firm because they want to have the power on all the time.

It would be best to have a highly responsive data center to cover the world's needs. So many of these technology companies are now—the term being coined is funny—it’s “bring your own power," meaning you need to go and source your own power somehow alongside building the data center. And so how they're going about bringing their own power is they're signing these long-term power purchase agreements with, in some cases, small modular reactors companies. So these companies are building these small or mini reactors that, in many cases, will be located very close to the data center so that the power is dedicated. You also avoid the whole complexity and the cost of building transmission lines, which can be onerous in the U.S. So it's a very clever solution that the big companies are focused on right now to secure their own power. They're doing it through renewable energy contracts. Still, more recently, they've signed a whole flurry of these nuclear power-related deals. It is interesting in terms of bringing capital to the sector, which it needs right now to commercialize and deploy many of these new technologies.

Thalia Hayden: Understood. For its 2025 outlook, the U.S. Office of Energy Efficiency and Renewable Energy has reaffirmed its commitment to advanced emerging technologies for clean energy and electricity. How is the demand for clean electricity influencing the demand for critical materials?

John Ciampaglia: It's fair to say that we've talked a lot about energy transition, but I think the term we need to now talk about is energy addition. And this is going to be a key focal point for the Trump administration. They want to dominate across many of these different energy sectors. You have seen a lot of chatter about loosening regulations around oil and gas drilling in the U.S. LNG, that is, liquified natural gas. That's another transition fuel that we think is going to get a big boost from the incoming transition of the Trump administration. And it's a number of technologies that we think are going to continue to receive Republican support. I think it's also important to note that historically, Republican administrations have been way more pronuclear than Democratic administrations. And it just so happens that the Biden administration has been very pro-nuclear, which has been a huge benefit to nuclear power stations and uranium specifically.

We think that continues. There are a number of industries that are now deemed national security driven, and many of those are very critical mineral intensive, whether those are for defense industries or semiconductors. And so we do see continued support coming to a number of these critical minerals as the U.S. is trying to mitigate against China's dominance in many of these supply chains and Russia. And it's obviously to be determined how exactly the geopolitics are going to play out—tariffs, trade wars—and how they may impact these different mine minerals and metals. However, the underlying fundamentals remain very strong, and we continue to see investor interest in many of these areas.

Thalia Hayden: One last thing before you go, John. Sprott is preparing advisors and investors for the critical materials megatrend by offering a full suite of critical materials ETFs. Can you tell us more about your unique ETF lineup?

John Ciampaglia: We think we're in the beginnings of a new commodity supercycle driven by critical materials, and these are not the same materials that drove the last commodity supercycle. Things like coal and iron ore were huge beneficiaries in the last cycle because China was essentially building 30 new cities and enormous amounts of manufacturing capacity as we outsourced everything to them. This new commodity cycle is going to be more mineral-intensive. Things like copper, nickel, and uranium are important for energy generation, transmission, and storage. We think they are going to lead this charge. And that is playing out so far this year. If you look at the divergent performance of things like copper versus iron ore, they highlight that the new industrial metals are going to be more energy-focused as opposed to more historically industrial-based.

We've tried to focus on this with our suite of different funds at Sprott. We want to provide investors with a broad suite based on whether they want to get pure-play exposure to a specific metal that they're bullish on or perhaps they don't want to make a single bet on a particular metal. They want to buy a basket of different metals. They also provide solutions around that. But I think the common thread with most of the funds we offer is that they provide pure-play exposure. So yet, you can get maximum upstream exposure to these thematics. That's why we focused on the upstream part of the supply chain, which traditionally involves mining stocks. These companies produce these metals, which should benefit from their higher operating leverage and optionality if metal prices remain strong.

Thalia Hayden: John, there is so much to work with here. Thank you for your timely insights, and keep up the great work.

John Ciampaglia: Thanks for having me. There are lots of interesting things happening in the world of metals and mining.

Thalia Hayden: That's all for today's episode of Shifting Energy. If you enjoyed the show, please hit the like button in the comments section below. To learn more about the investment strategies and ETFs we discussed on today's program, visit SprottETFs.com. I'm Thalia Hayden with ETF Guide. Thanks for watching, and we'll see you next time.