Uranium Update with Bloor Street Capital

October 5, 2023 | (15 mins 50 secs)

John Ciampaglia, CEO of Sprott Asset Management, sits down with James Connor of Bloor Street Capital to discuss uranium markets.

Watch more Bloor Street Capital videos on Youtube.com/@BloorStreetCapital.

Video Transcript

James Connor: Hi, John. Thank you very much for joining us. We last got together in late June, and so much has transpired since then. I want to begin with your marketing trip. You and your team have been on the road for many weeks now through Europe. Why don't we start right there? Tell us about the response that you have received in Europe regarding your various products.

John Ciampaglia: Great to be back. It sure does feel like a lifetime ago that you and I spoke in the summer. At that time, the whole uranium sector felt very flat to us. Much excitement had left, and it was a very different time. Things have perked up enormously over the last few months, which is great.

Uranium has been one of the shining lights among commodities, given that it has had strong performance year to date. I think many investors are interested in what's going on in the uranium space, whether they are deeply involved in the trade or new to it. Investors are trying to understand the key drivers.

But more recently, I was at the World Nuclear Association (WNA) conference in London, which seems like a lifetime ago. It was my first time there, so it was very interesting to see the premier industry conference. It was very busy. Around that conference, we booked a three-day non-deal roadshow with one of our partners there, and we met about 35 different investment funds. The interest in uranium amongst the London-based energy transition funds, family offices, hedge funds and some generalist funds, was very strong. That was great to see. We found a whole bunch of new shareholders there. It's always nice to meet someone and find out they're a shareholder. It was very good. I carried on to continental Europe and spent a number of days in Italy and Switzerland, meeting with more.

I think, all told, I probably met with about 55 different funds over my road trip. It's been busy, and it didn't let up when I got back. Interest is very strong right now, and we've been doing calls starting in the morning in Europe. Last night, for example, I had two calls in Australia and it seems to be the new norm. A lot of interest. Price action creates interest in inbounds, but I also think it's been a bright spot this year. If you take a step back and look at the returns in most asset classes, it's been a brutal year, after last year being a tough year as well.

Uranium has been one of the shining lights in terms of a commodity that's up materially this year. Most commodities are flat or down sharply, and I think many people are interested in what's going on there, whether you're deeply involved in or new to the trade. People are looking around and trying to understand what the drivers are here.

James Connor: I'm curious about the 55 investors you met in Europe. How would you define their knowledge base? Are these people new to nuclear energy and uranium, or do they have a bit of an understanding?

John Ciampaglia: Generally, we find a broad spectrum when we do these events. You find people who are energy specialists; they come out of energy backgrounds, and they've come out of mining backgrounds in some cases. We met with a number of energy transition funds.

They seem to be very well-versed in the sector. But you are constantly finding new people, too, because the reality is there was a 10-year stretch where we didn't need to pay any attention to the sector, even if you were a natural resources fund.

We've talked to natural resource funds that have told us they've largely ignored the sector for 10 years. But we found in the last few weeks, in particular, that a growing number of more generalist investors have been reaching out to us to better understand some of the uranium market fundamentals. I think that's very healthy.

If this bull market will last as long as we think it will, you need to get some new people in the door. People have made a lot of money in the sector, and yes, it's been volatile, but our investors, I think generally, have had a pretty good experience, and other investors are looking for new investment ideas. I mean, the days of buying a few tech stocks that can only work for so long. People are looking for other investment ideas, which is why there's some interest.

James Connor: Just on the back of that, given that uranium is one of the top-performing commodities year-to-date, I want to discuss the flows into your various products. Why don't we start with the Sprott Physical Uranium Trust or the SPUT product? It was trading at a discount for many months, and it's finally gone positive. Why don't you tell us what you've seen in that product in the last few weeks?

John Ciampaglia: As you mentioned, the Trust was trading at a very large discount over the summer, which reflected that lull in sentiment we just spoke about. But in the last few weeks, it's been perking up. It's clawed its way back to its net asset value, which is a good science and barometer of investor sentiment. That's positive because we don't want to see a discount that's too wide or persistent. We have returned to capital raising after a long period on the sidelines. But what's been interesting to us is over August, a month that historically is very quiet in the uranium market, the price kept going up. We weren't raising capital or buying uranium, and other financial players weren't either. We just noticed that the buying pressure in the market was driven by end users, which are utilities.

Utilities are the key part of the story here. They're back to contracting, and they're back to buying material in the SPUT market when it is available. We see producers from time to time come into the SPUT market as well and buy a pound. To us, that was the first thing that caught our attention. Over the last week and a half, Sprott Physical Uranium Trust has slowly raised new capital. We were almost out of cash so the timing couldn't have been better. We've built up a nice cash reserve, which is important because we must pay expenses to operate the Trust. As the Trust has gotten bigger, the cash amount that we need to hold, in dollar terms, is bigger.It might look big to people saying, "That's a big dollar amount." But as a percentage of the overall trust AUM, which is approaching 4.2 billion, it's not. It's very much within the norms of what we've held regarding cash. But we would love to get back to buying some material.

The market's been buoyant. There's been a lot of excitement coming out of WNA. I would say, first and foremost, it was the revised forecast that the WNA put out that showed in their model that between now and 2040, the demand for uranium, they believe, will go up 15% higher than their previous model, which they put out two years ago. That's a function of more life extensions and restarts in Japan. For the first time, they included the addition of small modular reactors, which everyone has been waiting for. When you start adding all those up, they translate into more pounds.

The industry is trying to meet that future demand by restarting existing mines. Several companies are trying to build new mines, which is very healthy for the industry. It will be a challenge in terms of whether the new production can come online to meet the expected demand in the next 5-10 years, when we start to see a ramp-up.

James Connor: Given the success of the SPUT product, many other people are entering the physical uranium market now. Is this hampering your ability to acquire pounds at all?

John Ciampaglia: I think it's well documented, there are a number of groups that are trying to mimic the success of SPUT. We don't have great visibility in any of them, quite frankly, because they're not transparent. They take a very different approach than we do. So, it's hard to know what impact they are having because they're not transparent in their activities.

But I think it's fair to say that other parties are trying to capitalize on this revival in nuclear energy and the growing interest in uranium. It's hard to say. But at the end of the day, our message has been very clear that this sector will be driven by the end users, which are utilities; they are the biggest consumers. They are buying ever larger amounts of uranium through long-term contracts. That's their business.

The financial players are the secondary supporting actors here. Financial players have been more active in the last couple of years, but I think that's shifting. Last year, we saw 125 million pounds purchased by utilities. We think we're already through that number this year and will hit a new record, which is great.

There is much chatter about new utility RFPs [request for proposals] coming to the market this year. It will be an interesting test in terms of where we are in terms of pricing, caps and floors, and all the typical contract terms that come with these long-term agreements.

James Connor: That's a good overview of what's happening with the SPUT product. Why don't we move on and discuss your equity products or your ETFs, beginning with the product that trades in London?

John Ciampaglia: We're very happy to share that. Our partnership with HANetf, where we clone the Sprott Uranium Miners ETF in a European wrapper, which trades in London, Italy, and Frankfurt, just crossed through $100 million in AUM. We launched that fund in May of 2022, and obviously, we've had some pockets of air turbulence over that period.

For that ETF to break through $100 million is a great symbolic milestone for that fund. In the last few weeks, we've seen an acceleration of money coming in. We've moved from $1 million and $2 million coming in at a time in the last week. We're seeing $8 million, $10 million, $12 million and $13 million coming in on any given day. It's starting to pick up speed. That's exciting.

We want to provide products to investors around the world. Then close to home in the U.S., our Junior Uranium Miners ETF is quickly approaching the 100-million-dollar mark. We're around $85 million or so, and that's a fund that we launched just in February. It's nice to see the fund finally start gaining traction with investors, and it's trading very well. We're happy with that one as well. 

Then, our flagship Sprott Uranium Miners ETF (URNM) which trades on the New York Stock Exchange, just crossed the $1.25 billion-dollar mark. It's great that these funds are performing and investors are having good returns, but I had a quick look today at all the different uranium mining ETFs listed around the world, and there are eight of them between the U.S., Europe, Australia and Canada.

I asked one of my colleagues to sum up how much capital all those ETFs raised this year. When you think about those ETFs, on average being up 35-40% for the calendar year, surprisingly, they've raised about $415 million. Despite the sector being very hot this year, $415 million — I don't want to bat an eye and belittle it — but in the grand schemes of equity flows worldwide, it's a drop in the bucket.

As more and more investors learn the uranium story, I think there's potential upside with those particular equity products because they're just starting to track capital after a long hiatus.

James Connor: John, as we wrap up, you and your team have been very creative in producing new products focused on the energy transition theme. What new products can we expect from Sprott in the coming months?

John Ciampaglia: We’ve been active this year in terms of adding new funds related to energy transition metals and miners to our suite. We continue to look for gaps in the market. I think the reality is the market is very underserved in terms of funds that are focused on these areas.

I think it's a function of very little interest in all things metals and mining for a very long time. That is changing dramatically as people start to understand the enormity of the energy transition and how mineral-intense it will be. There is significant capital that's flowing into the sector. It's been one year since the Inflation Reduction Act in the U.S. was passed, and if you look at the number of projects announced in the U.S. alone, it is mind-boggling.

There are new EV, battery, mineral processing and solar panel facilities. Hundreds of billions of dollars of new capital investments have been announced. They need to be built still. But all of that is going to require enormous amounts of critical minerals. Whether it's lithium, copper, cobalt, uranium, or graphite, so many different minerals will be part of this mix.

Investors are very curious about this theme. As I said, there are a growing number of dedicated energy transition funds that we find all around the world. I don't think these funds even existed three or four years ago. It's a new theme, and I think it's a theme that is going to last for the next 20-plus years.

James Connor: John, if viewers want to learn more about Sprott and its various products, where can they go?

John Ciampaglia: Sprott.com is probably your best place to start. We've got tons of great market analysis, commentary and educational content. That’s your first step: to educate yourself. Try to understand what you're investing in, and what exactly you are holding through some of these funds. It's a great resource for people. We've got great podcasts there and white papers and whatnot. I'd encourage you to start your process and utilize all the work we put out, which is a ton of work for us to produce. 

James Connor: That's a great overview, and thank you very much for making the time for this update.

John Ciampaglia: Thanks for having me. It was great to connect. Hopefully, before the end of the year, we might have another very interesting couple of months ahead of us.

James Connor: Let's hope so.