World Nuclear Symposium Post Conference Debrief

Podcast Transcript

Ed Coyne: Hello, and welcome to Sprott Radio. I'm your host, Ed Coyne, Senior Managing Partner at Sprott. I'm happy to have two returning guests, John Ciampaglia of Sprott Asset Management and Per Jander of WMC, join me today. Gentlemen, thank you for joining Sprott Radio.

John Ciampaglia: Thanks for having us back.

Per Jander: Thanks, Ed.

Ed Coyne: Guys, you just returned from London, where you spent a couple of days at the World Nuclear Symposium, so I'm sure there's a lot of stuff to unpack here. John, why don't we start with you and maybe touch on a couple of key points from an investor's point of view and what's going on in the miners? Why don't we start with the investor’s point of view? What's happening there? What did you learn?

John Ciampaglia: I just came back. We had three full days at the conference, and I should clarify, we weren't physically at the conference, going to the general sessions, but we were meeting with investors at the hotel itself. Outside, several banks hosted various investor forums, lunches, drinks and whatnot. I think it's fair to say we were booked from morning till night. What I take away from that is that interest in uranium is very high, and the general mood of the conference amongst investors was great. There was obviously a period of malaise, particularly in April, when the whole sector was in a free fall along with just about every other asset class.

I think people's conviction and confidence have clearly returned, given the price action, the executive orders, all of the interesting news announcements happening, and the uranium price is behaving a lot better. I would say there was generally a very positive mood, lots of engagement and lots of people wanted to talk to us. It was also nice to meet several new institutional investors, most of whom were generalists still doing nuclear energy supply chain 101. I had this great discussion with a portfolio manager who said, "We run a mega trends fund and we have identified nuclear as one of the mega trends." I thought that was just a perfect way to think about it. They were diving into the whole supply chain.

Ed Coyne: What is that telling you? I guess a couple of years ago, I had the two of you on, and we were talking about the early days when it went from $30 to over $100 and then came back down in the mid-70s. It seemed like more boutique or hedge fund managers were coming in. What is this telling you now that you're seeing larger generalists move into the market? What's your anticipation here as that starts to take shape?

John Ciampaglia: I can share an interesting story. A couple of years ago, we met with a fund manager in London who was very bullish on uranium. He told us, "I don't want it to be too big a position in my portfolio because I don't want anyone to notice it." I thought that was the perfect summary: that it was still fringy, questionable("is this legit, is it safe?"), and all those kinds of things that we've been talking about.

I won't say it's mainstream, but it's clearly out of the penalty box. It's clearly being looked at through a different lens, and that lens is not just about a supply deficit that we've been discussing for many years. It's now an enabler to achieve important objectives related to energy security, national security, grid reliability and decarbonization. That's a very different narrative and, I think, a much more compelling thesis.

Ed Coyne: Speaking of supply, this is probably a good time to bring Per into the conversation. From a producer and miner standpoint, what are you seeing out there? What are you learning? What's happening in the space as we sit here today?

Per Jander: I don't know if it's by design or not, but a couple of weeks before this symposium, first the Kazakhs came out with one of their yearly reports and basically said that we are going to stay put at minus 20% of their subsoil use levels. That means they're as low as they're allowed to go, but they're also saying that we can't increase our production over the next few years.

Most people expect them to sit where they are now, whether or not that is by design. Still, they don't want to get the pounds out of the ground because they want the mines to last longer, preserve jobs, or due to other reasons we’ve heard — such as acid shortages, labor or other production challenges. We don't really know. At this point, I don't think it really matters because the end result is the same. It's clearly not that the Kazakhs are walking around and seem uncomfortable with it.

On the contrary, they seem very comfortable and confident in saying, "Hey, this is part of our plan, and we're simply not going to increase production." Then, a few days before the symposium, Cameco said that their largest mine, MacArthur River, has had a setback in production this year because they're transitioning from one zone to another. They adjusted their yearly production down by 3 to 4 million pounds this year. This is an 18 million pound mine, so it's quite a significant reduction. Not all of that is Cameco's share.

Part of it is their JV partner, Orano, but they're obviously also having issues in the share where those assets aren't online, and they're looking to replace that somehow. Overall, this one-two punch right before the symposium clearly set the tone that if these suppliers are viewed as the biggest and the best ones in the world, if they're having issues, you can be sure that pretty much everyone has issues.

Ed Coyne: We haven't even unwrapped the idea of a new discovery or mine coming online if the existing ones are dealing with this. I believe the supply-demand dynamics are just continuing to grow.

Per Jander: They clearly are. Then, when you look at the demand side, it's just increasing. Every year, the utilities start to get more active. They obviously have been on the sidelines because of all the potential sanctions, or there will be trade restrictions. There's been so much uncertainty that many of them haven't been able to enter the market. They've also been busy with the enrichment and the conversion contracting. As that's starting to clear out, more are shifting towards uranium.

We saw three U.S. utilities active in July, and that's a month when normally nothing happens. If you add up the combined contracted volume, it exceeds the total amount of the tender by quite a bit. That tells us that they accepted more than one offer. These utilities are quite savvy, and they're more or less leading the pack when it comes to being trendsetters. If that's anything to go by, we can expect quite a bit more activity to come here in the next six months.

Then, overarching everything in the background is that the Koreans have a process where they are fairly public in what they do come out and procure; they're out for 8.8 million pounds over a 10-year period, which is quite substantial. They're asking for terms because they're probably public in their terms. They're asking for terms that I don't think any supplier will be able to match because it's just too far below the current sentiment in the market. It's a fair bit of activity on the demand side, and it'll be exciting to see what happens over the next few months there.

Ed Coyne: Speaking of demand in terms, I use this as a benchmark. When we talked a couple of years ago, when uranium was slowing a little bit, maybe 15 months ago, the price was around $70. I think. If I remember correctly, the term price was around $125, $130. Where are we right now as it relates to spot and term? What kind of conversations are happening? Are the Koreans trying to come below $130? Just give us a sense of that because it's just fun to compare and contrast what's happened in the last year and a half.

Per Jander: Yes, sure. The Koreans are asking for $101 to be fixed in a non-escalated ceiling. Cameco said a couple of months ago that they're looking for $140 escalated, so that's escalated by 5% a year. Obviously, a huge difference. When it comes to the term price, it's very opaque because I think that there aren't any price points. You can see the price reporters are writing up some things that we're probably looking at an $82 level, but it's hard to tell because it depends on all the other terms you have in the contract. The term price has a fair bit of uncertainty, and they try their best.

It's almost impossible to come up with a fair number because you also say, "I'm sure a company like Cameco can get something quite a bit higher than $80 a pound." The ones that might be able to meet those terms, the $80 or something around there, don't even have a mine operating. They have much more uncertainty tied to their assets than another producer. It's an even more opaque than normal in the term market right now.

Ed Coyne: That's where we're sitting right now, as it relates to spot in early September here, when we're recording around $80.

Per Jander: Slightly below. It's about $77 today.

Ed Coyne: Great. That's helpful. John, let's go back to you for a minute because as we talk about supply and demand and what's going on in this space, what does that mean for the miners and the equities themselves? What does that mean? What's happening on that side of the table?

John Ciampaglia: I might go back a little bit and build on what Per mentioned about the WNA supply demand forecast, which comes out every two years and was released oddly on a Friday, which was the last day of the conference, as opposed to the first day. I think it's important to dive into this a little bit more because there are a lot of nuances we learned talking to different parties with respect to how it is formulated.

One of the takeaways that we heard from some people is that this year's forecast, which comes out every two years, as I mentioned, was controversial amongst the working group members. Those are members who work on the finance, producer and utility sides. That piqued my interest because why is it controversial? This is something you can obviously model on the demand side in terms of existing and planned, and under construction plants, you can model the mines because, quite frankly, there aren't many of them in the world.

What we learned as we dived into the construct is, first of all, some nuances that somewhat impacted the supply side. One, the cutoff on the supply side was in June, and since June, we've had at least four of the uranium producers announce missed production targets. That's not baked into the supply number. The second interesting thing is the working group modeled on the assumption that all the pounds held by financial players, including the Uranium Trust, which is about 100 million pounds in aggregate, at some point, come back into the market.

That's an interesting assumption, given that it's not the mandate of these vehicles. Then the third thing I would say is that the supply is also based on every available project in the works, whether it's viable or not at current prices. They're all baked into the supply. Net-net, I think it's fair to say that the supply is probably inflated relative to what will likely play out in the marketplace. Then, on the demand side, obviously, what we have seen in the last two years is a lot smaller modular reactor development, a lot more restarts, and a lot of life extensions.

All of that is only pushing the demand curves up, whether you're looking at the reference, the base case, or the high or low scenarios. Nothing changed from two years ago or the two years before that. We remain in a structural supply deficit. That's not changing. I think the most meaningful thing that has changed, as Per said, is that two of the world's biggest and best producers are having challenges ramping up production.

That, I think, is probably more important to note because uranium mining is challenging. It is obviously an industry that was dealing with a lot of atrophy because it was basically closed in for many years when prices were not economic. It is trying very hard to flex production up, and it will come, but there are growing pains top to bottom across the company landscape.

Ed Coyne: Sticking with the investment point of view for a moment: if the existing mines are having an issue with ramping up production, are you seeing anything in the news flow or from this conference where exploration is starting to percolate back up? Are you seeing more companies talk about "Let's go find new deposits, let's look for opportunities out there," or is that too soon?

John Ciampaglia: I think there's a lot of activity happening. The most exciting development is that development companies, companies moving their projects forward to production are starting to sign offtake agreements. These are contracts for the future delivery of future production. That is an important piece of the puzzle because offtakes bring forms of capital financing to get those projects from concept to construction to production.

We were at the conference, and one company, during the conference, announced an offtake. You're starting to see more of these companies where utilities are willing to go to these earlier-stage companies and sign long-term offtake agreements to help them come to market. NexGen is obviously another company that's been in the news in terms of signing offtake. It's important because these are capital-intensive projects, and there's a demand signal from the utilities.

Ed Coyne: Going back to utilities—Per, what are you seeing from a utility or regional basis? Are there any hotspots out there? I was reading recently that here in the U.S., Illinois, South Carolina, and North Carolina are three of the largest states currently producing and consuming nuclear power and nuclear electricity. What are you seeing out there?

Are you seeing utilities raising their hands saying, "Hey, we need to start getting more of this," or "We need to expand." John mentioned the small modular reactors (SMRs), the restarts and the life extensions. From your seat, how real is that? Are you having conversations with some of these utilities? Please give us a snapshot of what's happening in that part of the ecosystem.

Per Jander: Yes. A lot is happening pretty much all over the globe. The Chinese are by far leading the pack. If you look at the 60 reactors being built today, half of those are in China. They're marching ahead as they always have. There's no reason to believe that they'll stop anytime soon. Now they've got it down to a science that it's less than five years for them to build a reactor. If you believe the numbers, they say they're also quite affordable compared to other parts of the world. They're getting very good at this.

I would say across the board, there's utility activity everywhere. If you go back to the report that John mentioned, this Nuclear Fuel Report that comes out every two years, it’s like there's a cutoff on the supply side, for utilities, we normally wait until the final investment decision before they get into the model. Then I met with a row of different utilities, and I would say every single one of them had some nuclear new build project going, and none of those projects were in the demand model. They're aiming for them to be up and running by 2035.

That means that the fuel demand from these reactors will hit five years from now. The decision hasn't been made yet, but they're also not planning this for fun. They will go ahead and build this. I think one of the interesting things, if you look at this report as well, just like the supply side tends to be a little overstated, because there aren't any cost levels in there. On the demand side, it's almost a lower level than you would expect.

The reason is that these people come and sit together, and basically, companies from all over the world come and sit together. It's almost a negotiation, where the supply side doesn't want to say, "Oh, we're not going to produce that much, the price is going to be high," and the demand side is doing the same thing, "We're not going to build that much," or "We're not going to consume that much," so the price is going to be pretty low. A few years ago, it almost became farcical, and Cameco said, "We're not even going to be part of this process because it's not useful anymore."

They have since come back to the table, and I think it's a much more constructive dialogue going on now. I was at Cameco then, and I think it was the right decision because it was not very productive. Now, it's come to a better level. The most interesting number, at least what I look at, is how much the demand side has increased for each report.

If you compare it to the last report, the reference case is up almost 10%. The low case is up by 12% compared to just two years ago, and this is by 2040. If you look at the low case itself, it is more than 50% higher than consumption today. Even in their lowest case, we're increasing our consumption levels by 50%. That, if anything, is extremely bullish compared to where we've been in the previous years.

Ed Coyne: Maybe a better way to ask is, what is the risk on the supply-demand side of things, where if there's too much demand and supply can't meet it? We always talk about AI and data centers, wanting to move towards nuclear. Is there a risk of them saying, "You know what? This just isn't doable. The supply demand is not going to be able to keep up with our growth. Let's look elsewhere," or is it going to fuel more innovation and try to catch up to meet that? What's your sense on that?

That might be a good comment for both of you to lead with. I read that less than 10% of the cost of running a reactor is the fuel itself. Maybe even if it doubles, it doesn't really change the profitability of that. Is that A true, and then B, I guess the second part would be, is there a risk of supply and demand not ever meeting, and people decide to start looking elsewhere to create electricity?

Per Jander: I can start here. The 5% to 10% number you have is probably the uranium itself. If you add conversion enrichment and fuel fabrication, you might get to 10% or 15%. Even so, it's not very much. If you have energy prices go up as they have been, and if you look at the UK, where we were, they've gone up by quite a bit, you can absorb a relatively large increase in uranium prices and still be doing just fine when it comes to the economics of your power plant. I am not concerned at all. John, I can pass it over to you when it comes to the scarcity of uranium. What would it take to get that stuff out of the ground?

John Ciampaglia: Investors often ask, "What's the bear case?" The obvious one is a large-scale industrial accident. The only other bear case we've ever heard put forward, and this is by a very well-respected longtime industry participant, was that there's not enough fuel to underpin these ambitious build-out programs. Now, if you think about that statement, who's leading the most ambitious build-out program in the world? It's China, as Per just mentioned. China has been aggressively stockpiling and is the most aggressive among different groups, buying uranium in the last few years, while other utilities have been somewhat on the sidelines.

If most of the growth comes from China, industry reports say they're sitting on significant stockpiles. We've heard that Microsoft is now an official member of the WNA, which I think raised people's eyebrows. What if these hyperscalers are all in on nuclear, in terms of baseload power that we talked about so often, Ed? Given their deep pockets, what if they create a whole new demand source? As we know, in all commodity markets, prices adjust to create commodity responses.

I was reflecting the other day on what kind of commodity response we have had since we started this journey in uranium four years ago. The price was under $30 a pound, and we were producing, I don't know about 120 or 125 million pounds of uranium that year. The price is $77, and we're producing maybe 150 million pounds. For the price of uranium to more than double, and we've been able to increase production by 25 million, which was mostly the restart of one mine, doesn't feel like a very powerful supply response to me.

That's just because uranium mining is challenging, and many of these assets and projects have been stuck in the ground for a long time or stuck in three or four-year permitting processes. More pounds are coming, but it always takes longer for uranium to have that supply response, unlike other commodities, where you start pulling more oil or gas out of the ground when prices are attractive. I think that's the wild card: these hyperscalers are driving the marginal increase in electricity demand.

They're willing to sign these long-dated power purchase agreements with utilities at levels way above the wholesale rate today, which is really putting a lot of pressure on the whole system. There is growing energy demand, no doubt about it. New players are coming into the market and have the ability to disrupt the oligopolies that the utilities operate within. There could be some very interesting things that play out over the next few years.

Ed Coyne: Then, what would you say about the miners themselves? How should someone think about participating in equities as this continues to evolve? As you said, it's not mainstream yet, but it seems to be moving in that direction. As that happens, how should people think about underlying mining stocks?

John Ciampaglia: The mining stocks have done well this year. They were incredibly oversold in April. They have experienced a very sharp V-shaped recovery, and they're doing very well relative to the price of physical uranium this year. It's been a year where the uranium price has meandered around a bit, the equities sold off, but then have recovered and then some.

We haven't seen much new capital coming into uranium mining equities, even though they're performing much better in the last few months. I suspect we will start to see a reversal there, as general interest in uranium is returning to the market. I used the term earlier about inflection points. Again, these are very gut-driven, but it does feel like we're at another inflection point here in terms of sentiment, price action, and interest, so we're feeling quite constructive going into the year-end.

Ed Coyne: Great. Thank you. Per, do you have any parting thoughts about the supply-demand or production sides?

Per Jander: I don't know if it will have an immediate impact, but just what John mentioned, you have a company like Microsoft that is part of the World Nuclear Association. If someone had told me that a couple of years ago, I would've thought they were joking. These enormous companies come in and look around at our quirky field here.

It's not in any supply and demand models yet, but things can change quickly, so it's a very interesting space. It's clearly not just Microsoft. Google is right behind them, and you have Meta and everybody else, too. There's a lot of capital up there, and they won't slow down because they can't find the electricity they want. They'll make sure it happens one way or another. It adds a very exciting element to this space.

Ed Coyne: Yes, I would agree with that. John, anything to leave us with as well, maybe more on the investor point of view?

John Ciampaglia: Yes. As I mentioned, we went through a challenging period in the spring, and fundamentals did not drive it. It was driven by noise, uncertainty and shifting trade policies. The one thing I think is very positive to reiterate is that uranium is not subject to tariffs. I think that demonstrates the strategic importance of uranium to the U.S., given how important nuclear energy is in the overall mix, and that the four executive orders that Trump has signed are very supportive and bullish for this nuclear renaissance, which is being talked about.

It feels as though we're getting into more of the action phase. I think the groundwork has been set. Companies and utilities now have a clear direction on what's in place and what’s changed. We still have some unknowns with respect to Russia and its role in the nuclear fuel supply chain. The trend is clearly to reshore as much of that supply chain as possible. Uranium mining is also getting a boost in the U.S., and several projects have been eligible for this fast-tracking process in Canada.

The federal government has also identified one of the most coveted uranium deposits in terms of expedited approvals and support. Governments are finally starting to not just talk in high-level terms but actually identify specific projects and objectives on which they want to focus their energy. I think that's very positive. This industry can be a little bit lumpy in terms of news flow. As Per said, it's sometimes opaque, so everyone's scrambling and looking for signals. It feels as though the signals going forward will be a lot more constructive.

Ed Coyne: That's very helpful. I always try to remind people that if you think about spaces like this, you have to think in multiple market cycles. This is not a daily trade or a one-quarter or one-year opportunity. It is a multi-market cycle opportunity, which requires patience. Thanks again for your time and your insight. We appreciate you sharing your information with all of us.

John Ciampaglia: Thanks for having us.

Per Jander: Thanks a lot, Ed.

Ed Coyne: Thank you. Once again, my name's Ed Coyne, and you're listening to Sprott Radio.