Opportunities in Uranium

Podcast Transcript

Ed Coyne: Welcome to Season 1, Episode #6, Opportunities in Uranium. I'm your host, Ed Coyne, Senior Managing Director at Sprott Asset Management. Today's podcast will be a bit unique in that traditionally, we've covered both gold, silver, and to a lesser extent, platinum and palladium. In exploring uranium, I have asked two special guests to join me today, John Ciampaglia, CEO of Sprott Asset Management, and an outside consultant and special guest Per Jander from WMC Energy. John, let's start with you and talk a bit about the structure of uranium and the product itself and why we're interested in it today.

The Launch of Sprott Physical Uranium Trust (TSX: U.UN)

John Ciampaglia:  We're very excited to be adding the new uranium trust to our lineup of physical commodity funds. We've been interested in uranium for several years and we're very happy that we received overwhelming shareholder support on our acquisition of Uranium Participation Corporation. We manage approximately $12 billion in different precious metals commodity funds. The addition of Sprott Physical Uranium Trust will add another roughly $600 million to Sprott's assets under management.

Sprott Physical Uranium Trust will be listed on the Toronto Stock Exchange. The tickers will be U.UN in Canadian dollars. For the first time, we are offering a U.S. dollar purchase option to investors and the ticker for that will be U.U. We're excited about adding that new purchase option for U.S. investors. The objective of the Trust will essentially be the same as it has been for Uranium Participation Corporation for all these years, and that is to own physical uranium. The new Trust will hold the equivalent of about 19 million pounds of U₃O₈ or uranium oxide or as commonly referred to as yellowcake.

I'm sure that sounds like a mind-boggling number, as it did to me when I first learned about this. Still, to put this amount of uranium into context, a country like France, for example, generates about 70% of all of its electricity from nuclear power. That amount of pounds of uranium [19 million pounds] would fuel those reactors for about nine months. It's a tremendous amount of material that has an incredible amount of energy density that it can produce.

Also, we're pleased to introduce Per Jander from WMC Energy, the firm acting as technical advisor to the Trust and it has tremendous experience in the uranium market.  Per along with his partner Mandeep Ludu have been great to work with so far.

WMC Energy B.V. as Technical Advisor to the Trust

Ed Coyne: Per, let's go into your experience a bit. Coming in as a technical advisor into a unique asset like uranium, you're going to be a highly valued partner to Sprott. Talk a bit about your background and your technical experience and how you plan on working with us on the uranium market.

Per Jander: Thank you very much. We're very excited to work with Sprott on this as well. Originally, I grew up in Sweden and I've been in the energy sector my entire career, more or less, and started out with biomass and hydro energy. I wasn't sure what to think of uranium and nuclear energy to begin with, but I ended up working for a couple of utilities that had nuclear energy assets and spent some time there, and I got excited. It's an amazing technology with a big potential to make an impact.

After a couple of years, I joined the Canadian mining company Cameco, which is one of the largest mining companies in the world when it comes to uranium, and spent about 15 years with them in various roles in sales and trading and dealing with utilities all over the world and other producers. The uranium industry is a small, quirky industry. All the producers know each other. There are some traders and intermediaries, and again, the end users are all utilities. All in all, it's maybe two or three hundred people. Once you get into the industry, many people stay around because you tend to work with people you know. After Cameco, my colleague Mandeep and I joined a couple of colleagues in Amsterdam with WMC Energy. It's a physical commodity merchant. We are mostly active in the low-carbon energy sector, which focuses mostly on the nuclear market, and we're expanding the battery materials.

We've been talking to Sprott now for some time and are very excited to be part of this new initiative. Sprott is extremely good at what they do with the physical commodity trusts. We feel we can add some value in navigating the experience of uranium.

Ed Coyne: Certainly, that navigation is going to help at all levels. I think the most important level is going to be the investment case level. Often, our investors come to us really as an advisor to the space as they try to determine how to invest in one metal versus another metal. Could you walk us through the investment case for uranium? Where are the opportunities?

Aggressive Decarbonization Goals Support Nuclear Power

Per Jander: I think you start by just looking at global electricity demand and how fast it's been growing. It's been doubling since the year 2000 and it's scheduled to double again by 2040. The world will need electricity regardless of where you go, and especially now, there's a lot of talk of decarbonization. Setting very aggressive targets means eliminating fossil fuels.

We're seeing a very rapid expansion in the electrification of the transport sector. Even now, I don't think a day goes by without seeing an electric car on the roads, and I'm located in the Midwest. When you're looking at a place like Norway, for example,  over half of its new cars are electric. There has been a very rapid expansion in that area. We're going to need every source we have.

Renewables are a great way of generating electricity, but we're going to need baseload energy and that's traditionally where we've seen the use of fossil fuels, like coal, oil and gas. They emit greenhouse gases, but with nuclear energy the emissions are very low or none. Nuclear energy has some emissions over the lifecycle view from cradle to grave, but the power stations themselves are zero emissions.

On top of that, the reliability of nuclear power stations is that once you turn them on, they keep running. They run 90-95% of the time. They are only stopped to refuel and turned back on again, so they're very efficient. One little fingertip of a fuel pellet is the same amount of energy content as three barrels of oil or one ton of coal. A uranium fuel pellet is extremely energy dense, which makes transport easier. You don't need a lot of energy to transport the pellets. The mining techniques are also very efficient.

Safety is always a big concern. When someone hears the terms "uranium or nuclear energy," the usual response includes funny jokes about glowing in the dark, but over their lifetimes, nuclear power stations are the safest out there compared to other ways of producing electricity.

Nuclear Power is Part of the Climate Change Solution

Ed Coyne: Talk about nuclear energy and uranium in general from the perception standpoint versus a reality standpoint to help our listeners get comfortable with this part of the market. What would you have them think about when thinking about uranium in general?

Per Jander: I think much of the stigma around nuclear energy comes from the Cold War days. There was a movement in Sweden called The Movement Against Nuclear Energy and Nuclear Weapons. They put them in the same sentence implying a connection between the two and that's what makes people worried about it or afraid of it. In my view, there is no connection. Civilian nuclear energy is completely different from the military aspect of things.

I think it's just a matter of getting comfortable. If you are concerned about climate change and sustainable development, I believe nuclear energy must be part of the solution. I would encourage anyone who's thinking about this to do some research. There are some great sources of information out there.

A Look Back at the Uranium Market

Ed Coyne: Let's shift gears back to the market and talk about the bear case and bull case for uranium. Over the last couple of decades, we've seen some tremendous run-ups over the years. And we've seen some spectacular sell-offs that burnt investors or has made them cautious. Where are we in that cycle today? Why is the market becoming more bullish today in uranium?

Per Jander: When most people look at uranium, they look at the price graph and see that something very significant happened 15 years ago, around 2005-07, which is basically the last cycle. In a way, it was quite similar to today. There was a growing concern for climate change. Some new nuclear power plants were being announced. China grew its program quite aggressively and it started stocking up, buying uranium and stockpiling it. There were some American and Western European projects announced as well and it felt like it was a moment of growth. That's why you had investors joining in as well. Uranium took off and one of the things that compounded the spike back then was that many utilities were caught off guard. They simply did not carry that much inventory and it just exacerbated the situation.

That spike was pretty short lived because the global financial crisis hit in 2008. Funding seemed to disappear, and while policies were about to be put in place by different nations, they had something else to focus on. They had to get out of the financial crisis. It's almost like the climate change and sustainable development argument took a back seat. Then in 2011, the Fukushima Daiichi nuclear disaster in Japan hit. That incident knocked the wind out of nuclear energy's sails and it just went into hiatus for eight, nine years.

Growing Momentum Supports Uranium and Nuclear Power

The difference this time is that you are seeing actual new policies coming into place in various parts of the world that have the political support that simply wasn't there before. We're seeing it in Europe with the taxonomy nuclear energy is going to be included in that, which could be a huge boost for investments in Europe [in April 2021, the European Commission announced its decision to include nuclear energy in a complementary Delegated Act of the EU Taxonomy Regulation]. You're seeing the new Biden administration in the United States considering cutting emissions by quite significant amounts in order to achieve fossil-free power generation by 2035. Nuclear energy has to be a part of these goals. At the same time, Japan is going to put its nuclear power stations back online and it also has some aggressive targets. And every time we get a new five-year plan from China, it includes more nuclear. It just feels like there's a bit more momentum behind it this time around, and it's backed up by global policies.

Ed Coyne: Fantastic. We're looking forward to our partnership with you going forward. Before we wrap up, I'd like to bring John Ciampaglia back online and see if there's anything you'd like to leave us with.

John Ciampaglia: I would like to highlight a few key differences between the previous structure, the Uranium Participation Corporation and the new trust, Sprott Physical Uranium Trust. All of these items I'm going to cover are intended to be very shareholder-friendly. I already mentioned the U.S. dollar purchase option that will be available for the first time, but more importantly than that, we will be providing daily disclosure of the Trust's underlying holdings. Currently, that's done monthly. We will also be doing a daily evaluation of all the Trust holdings so investors can see what the net asset value is on a day-to-day basis. We think this is very important. It will be very welcome added transparency for shareholders. Secondly, we'll also be implementing an At-The-Market (ATM) offering over the coming weeks. This will help to grow the size of the Trust in a cost-effective way and, more importantly, to improve the quality of the Trust, which is very important to incent additional investors, particularly larger institutions that want to get involved in the uranium trade. This would be an added incentive for institutions to come into the Trust.

Working Toward an NYSE Listing

Finally, we will be pursuing a dual listing on the New York Stock Exchange. This will take several months because it's never been done before, but we are very keen. It was part of our commitment in the transaction that we would fully fund the cost of pursuing a U.S. listing for shareholders. We think this will be a key development to have the Trust listed with the world's largest capital market. We believe that this will be a big win if we can get that done sometime in 2020.

Ed Coyne: Thank you, John and Per.