Webinar Transcript: Amir Adnani – Is Nuclear a Core Part of the Green Revolution?

This is an edited transcript of our webinar episode with Amir Adnani, CEO and founder of Uranium Energy Corp, published on 12 January 2022. Amir serves as a spokesman for the uranium industry and is frequently invited to speak before major industry gatherings including the Milken Institute Global Conference and the World Nuclear Fuel Conference. He is recognised by Casey Research, a leading investment advisory publisher, as a top-ten leading mining industry entrepreneur and executive. Amir is also a founder and the Chairman of Brazil Resources Inc., a gold exploration company listed on the TSX-Venture Exchange with projects in the gold districts of Brazil. While we have tried to make the transcript as accurate as possible, if you do notice any errors, let me know by email.

Andrew Simon:

I want to thank everyone who’s joining the webinar. Thank you Amir, very excited for many reasons. I want to wish everyone a very healthy new year to everyone, to themselves, to their family. During this time hopefully there’s coming towards the end of the pandemic, and obviously for market professionals and investors.

So, it’s been a pretty spicy start to the year. Certainly in equities, credit, fixed income. I would say macro, certainly macro is back, certainly over the last couple of years. So maybe just before we dive in, just in case people hadn’t seen a few of the pieces that we’ve recently put out or kind of reinforcing or slightly changing views. I would say of all those things, the biggest thing is along the team have gotten with a more bearish dollar view, which is especially in expressing it versus the Yen. So our bearish USD/JPY view, which for many investors has been one of the most popular trades the other way. So we still see quite heavy positioning there, we’ve definitely gotten some pushback on that trade. But that’s definitely one of our core trades, certainly in FX. We continue to be fairly conservative on risk. And I think around the Fed, we look for four rate hikes for next year, between Bilal and Dominique, most likely starting in March, and quantitative tightening starting in the summer. But overall, we’re probably a bit more conservative on growth as well. So please reach out with any questions on any stuff we produce. Hope everyone’s enjoying it. And I would say most of all, if anyone has feedback on stuff, the way we present it, the way we deliver it, the content, even any kind of model framework stuff, please reach out. So I’ll kick off the webinar. And I will just say small background is…

I’ve personally been kind of interested in the uranium space for a long time when I had a hedge fund several years ago in South Florida with a few partners. Actually one of our holdings was the Uranium Participation Corp. And for a lot of the reasons, though, was kind of early…. For a lot of reasons that are playing out now, and obviously that we’ll discuss today. So background if you don’t know Amir Adnani, she’s the founder and CEO of Uranium Energy Corp, which was launched back in January 2005. Amir serves as a spokesperson for the uranium industry, as a frequent speaker at major industry gatherings, including the Milken Institute Global Conference, and the World Nuclear Fuel Conference, both of which I’m sure are super cool. He’s recognised, no surprise, as a top 10 leading mining industry and executive. Amir also, which he can touch on a bit today as well, is Chairman of Uranium Royalty Corp, since its inception in August 2019. And Amir is also the founder and chairman of Global Mining Corp. So on that introduction, I will pass it over to you. And as the first time I’m doing this, hopefully that works.

Amir Adnani:

Thank you for that introduction. It’s a pleasure for me to be connecting with you guys and to be on Macro Hive. So appreciate the invite.

Andrew Simon:

It’s our pleasure.

Amir Adnani:

I look forward to this very timely discussion on uranium and nuclear energy. Perfect. So I think what I’ll do, and what I was asked to do, is to just give a quick overview of the nuclear industry and kind of the macro environment, speak a little bit about Uranium Energy Corp and Uranium Royalty. And then, Andrew I’ll be at your disposal for however way the rest of this webinar goes. But I think, more than anything, we have a situation where as we kind of enter 2022, I can’t think of a better year in terms of the macro backdrop for nuclear energy as I’m seeing right now as we enter this year. We’re seeing robust growth as this slide shows for nuclear energy and nuclear power globally. We are well past and higher today in terms of global nuclear energy generation compared to any other time, including pre Fukushima levels. We are seeing a fundamental shift in terms of how nuclear energy is being embraced, whether it’s developments and news around possibly being included or being recommended to be formalised and included in European taxonomy, to the recognition that if governments and corporations are going to meet their net zero pledges, it will never happen unless nuclear power plays an integral role in the energy mix in moving forward. And so the mega trends of de-carbonisation and electrification really underpin never seen before growth and support for nuclear energy, including some all-time high public opinion forum polls, especially in the US where we’re seeing record high support, especially from the Democrats towards nuclear power. And so also enjoying that bipartisan support here in the US. China is the big driver of growth, and so China’s planning at least 150 new reactors over the next 15 years. Today, the US is the largest player when it comes to generating nuclear power and electricity from nuclear power. China will overtake the US in the next decade. And so when you look at 51 reactors under construction, 60 reactors that were connected to the grid since 2012, you see a sector that is growing, this is a growth story. And it’s very much necessary, again, if we’re to meet the de-carbonisation goals, that the world is now setting for itself.

I touched on the fact that nuclear power is critical to US energy. One in every five home in the US is powered by nuclear. It is responsible for the largest source of emission free electricity in the US. And the bipartisan infrastructure bill provides for $6 billion in nuclear credit programme, and it will also be beneficial to the newly created US uranium reserves. So $1.5 billion programme over the next decade to purchase newly mined uranium in the US. Again, these are all fairly historic in nature. The last time the US government was actively buying and stockpiling physical uranium, you got to go back to the 1950s, the Eisenhower administration. And so what we’re seeing, what we’re witnessing, is really not just your every day or every year type of event, this is truly historic in nature and in scope.

Andrew Simon:

Can I ask a quick question on Uranium reserves. How big is that in relation to the market? And has the US already been acting on it?

Amir Adnani:

It hasn’t started yet. It should start this year. And so it’s brand new, and it will be the appropriation has taken place for the initial tranche of $75 million to take place. Where it has real impact to the market is in the context of how it’s being defined. It is being defined as a programme where the United States Government will purchase, and can only purchase, newly mined uranium that is from a US based mine. And currently, no US based mine is operating and producing uranium and so we’re at ground zero. And when you’re basically producing nothing, there’s tremendous room for growth, especially when the US government shows up wanting to buy uranium. So in that context, it’s very impactful, it’s very meaningful, and it will certainly create and act as a catalyst to bring the next generation of new uranium mines in the US back online. Again, it’s crazy today to think that the US is the world’s largest consumer of uranium, but there are no domestic mines operating. In fact, in all of North America, there’s only one mine operating when you look at chemical Cigar Lake and majority of production, as we know, is in the country of Kazakhstan. And we’ll talk about some of that geopolitical sort of dynamic and overweight here in a second. But before we even get there, the uranium price has been one of the best performing commodities. Over the last six to nine months, we finally kind of broke out of this range of $30 per pound, approaching $50 per pound. Today’s bid ask is 45.50 to 46.50. So the price has finally come to life on the back of the macro points that we talked about, on the back of just good old supply-demand where demand for uranium far outstrips available supplies. The entry of financial players like the Sprott Uranium Trust that’s allowed the entry of day to day capital flows into what was previously a very illiquid physical uranium market. And really the realisation that, at uranium prices even in the $45-$50 range, we’re not seeing new mind development. New mind development requires incentive prices significantly higher than where we are. And when you look at the uranium price at its all time high, the all time high uranium price, or even just the 15 year 20 year high was 2007, when we got through about $140 per pound. When you look at the pre Fukushima price it was $70 per pound. We’re nowhere near any of those prices. And then if we adjust those historic prices from a decade ago, or 15 years ago for inflation, we’re well North of $100 a pound in terms of where uranium prices most likely will be set differently.

An obvious important barometer for inflation is the gold price. And the gold price is at $1,800 an ounce today. Today’s uranium price compared to when you think about gold… Today’s uranium price is the equivalent of $700 an ounce gold. Projects are not economic, it’s not factoring in inflation. It’s not factoring in what the capital return requirements would be to build new uranium mines. So I really believe the uranium price today really just being at 1/3 of its all time high, not even adjusted for inflation, is nowhere near where it’s going to be before this market truly comes to life and emerges, despite the fact that uranium prices in the last six to nine months are up 50% and makes it one of the best performing commodities. Despite all of that, I don’t think we’re nowhere near where prices need to be. And really, when you think about what’s happening right now, in the country of Kazakhstan, over the last 15 years, the bulk of production growth in the world has come from Kazakhstan. Kazakhstan is 42% of global production.

If we had riots and protests on the streets of Riyadh, or in any of the major cities of Saudi Arabia, we’d see a much bigger spike in the oil price. And Saudi Arabia is only 10% of global supply in the oil market. Kazakhstan is 40% of supply in the uranium market, significantly higher waiting. And this I think, has really created an environment where it’s a wake up call. It’s a wake up call that the geopolitical risk with high production concentration in the uranium market presents supply side and supply chain disruptions, we may still experience disruptions in the country of Kazakhstan. But reality is the wake up call has already happened. And firms like TD Securities and other analysts covering the sector, have been highlighting this emerging geopolitical and too much production concentration risk over the last week. And you really wonder as we enter into a new contracting cycle for uranium, how utilities will behave and analyse and think about these issues in Kazakhstan. Will a Risk Officer at a major Western utility think it’s acceptable given the heightened political risk and geopolitical events here in Kazakhstan, that they should be so overweight and exposed to just one region?

Andrew Simon:

Do you think they may look to source that from other regions in the world?

Amir Adnani:

I think it would behove any… If you think about the elements that you need to manage if you’re a publicly listed utility, right? Today more than ever Andrew, as you know, you need to pay attention. And you need to be a responsible player when it comes to ESG. When it comes to ESG, it matters where your supply chains come from. And it’s quite unfortunate, and it’s sad that the President of Kazakhstan as recent as a few days ago, basically told the country’s security forces they can open fire on protesters, and well, that’s the country. And that’s the government that is the majority owner of Kazatomprom, the world’s largest uranium supplier. I think it would be almost unethical if you’re a Western utility and you still think that you should just turn a blind eye to that. I don’t think ESG and today’s ESG reporting framework would even allow that, it’s unconscionable. And on top of that, if you’re a Risk Officer and you’re looking at concentration, risk and supply disruptions, given the geopolitical upheaval, I think you would be thinking, “You know what, this is a good time to have some diversification.” And historically, it’s never looked like this. Historically, it’s never been a situation where North America was a single mine uranium setup. There’s always been multiple mines in the US, in Canada, and I don’t know how we got to this point. And well, I know how we got to this point, we had a decade long bear market in uranium. And so I think we have a situation here where the future must be greater production, diversification, and the only places on Earth where we can truly use new sources of production, is really Canada and the US. Because these two markets are the markets that are least served in terms of new supply sources and historically have been the biggest players in terms of uranium mining. Today, 50% of uranium supplies coming into the United States is from Russia, Kazakhstan and Uzbekistan. And that just doesn’t seem right. Especially when you talk about Russia’s aggression towards Ukraine, you look at the issues in Kazakhstan. There’s, obviously, Uzbekistan sits in the same part of the world. And the bottom line is that to have 50% of uranium supplies coming into the US, that’s basically one in every 10 home in America is getting its power from uranium coming from Russia, Kazakhstan, Uzbekistan. That doesn’t seem right. And I don’t think, again, whether it’s ESG considerations or good old geopolitical risk mitigation considerations or strategies, I don’t think the picture continues looking like this. And there will be changes, and there will be the emergence of more North American sources, especially in the US. Because you have the US government for the first time in over 40 years, saying it wants to purchase uranium from uranium mines in the US, on US soil. So I think the writing’s on the wall. And it’s just a question of this trend gaining broader recognition and understanding. And so just to kind of also provide a quick overview of kind of how this dovetails with the Uranium Energy Strategy. Uranium Energy Corp, as a Texas headquartered US domiciled New York Stock Exchange listed company that I founded 17 years ago, and I’ve been the CEO of as during this period… We’ve had the focus and mission to become the largest American uranium mining company. And that focus and vision was realised recently when we were able to pull off the largest M&A transaction in the uranium industry of the last decade, which was our acquisition of Uranium One from Rosatom, which is Russia’s state on nuclear energy company, and we acquired that late last year for over $120 million dollars cash. And it really makes UEC the fastest growing 100% unhedged pure play uranium company listed on the NYSE. We’re production ready. Our production profile, which is permitted, and I underlined the word permitted, gets us up to six and a half million pounds. We have two processing plants in Texas and Wyoming that are fully built. With the President of Kazakhstan telling security forces to open fire on protesters, I can tell you Kazakhstan compared to Texas and Wyoming, I think Texas and Wyoming sounds a heck of a lot better right now. And in addition to all of that, as you may know Andrew, a year ago we started stockpiling physical uranium on US soil. So we actually control one of the largest portfolios of US based, US warehouse, physical uranium that we own, it’s in a barrel, it’s ready to go. We have a balance sheet with over $120 million of liquid assets on it.

So UEC, after 17 years of blocking and tackling, and really putting the building blocks in place and being aggressive and really building the company with this vision that was, “You know what, there’s got to be a return to US production, US sources, for geopolitical reasons.” And we’ve invested in a platform that very much today is the leading and the largest uranium mining company and that’s really something that we’re ready to kind of respond to, we’re ready for supplying the needs of the US government, US utilities. And we actually think that US Institute recovery projects, which is the type of mining we’re focused on, will be competitive globally. So it’s not even a question of having projects that don’t have that economic competitiveness to them. Here’s a slide that just talks about what this latest Uranium One acquisition did for us, how accretive of a transaction it was.

Andrew, for roughly 12% of our enterprise value, we basically doubled the size of our business. And so the accretion to our company was massive. And again, just a great opportunity to bring these assets that are quite important. The Uranium One US assets were very much talked about in the media, very much subject of media coverage, because they’re large and important assets that were controlled by a foreign entity on US soil, and now they’re controlled by a US corporation, and that also has national security implications. And today when you look at kind of our diversified portfolio, we really kind of cover a lot of bases. We cover production and US production with two fully built processing plants, eight fully permitted uranium mines, and a capability to get up to roughly six and a half million pounds per year, making us not only the biggest player in the US but a globally relevant and top five player even on a global basis. But we have some interesting other holdings. As I mentioned, we own physical uranium on US soil. We have 4.1 million pounds of physical uranium that we either own or have contracted for at an average price of $32 per pound. And we also own 18% equity stake in Uranium Royalty, which you introduced and mentioned at the beginning. I’m the chairman of Uranium Royalty, Uranium Energy owns 18% of Uranium Royalty, and Uranium Royalty has been dependent… Actually has been the best performing uranium stock last year. So we’re obviously pleased about that. And it occupies a unique space. It is the only pure play uranium company executing the royalty model, the very successful royalty model we’ve seen in the precious metal sector that has given birth to giants like Royal Gold and Franklin Nevada. These are $20-$30 billion dollar companies. And this royalty model, on an exclusive pure play basis in uranium, did not exist. And it was an amazing opportunity to capture a few years ago when Uranium Royalty Corp was launched. Today, Uranium Royalty Corp has royalty interest on some of the best uranium mines on the planet including Chemical Cigar Lake and McArthur River Mines. Paladins Langer, Heinrich mines, some of UEC’s projects and in the United States, ownership of physical uranium. And again, having this very coveted position of being 100% pure focused on uranium and being the only way to play the royalty model in the uranium sector. We’re NASDAQ listed, and the company has a tiny GNA, over $100 million of liquid assets on its balance sheet. And we’re really excited and proud of being an 18% owner… It’s been a huge win for UEC. So it also shows you that you got to be entrepreneurial in this uranium sector, and you got to get out and be aggressive. And we put our money where our mouth is. As I mentioned, making this Uranium One acquisition is the biggest M&A deal of the uranium sector in a long time. And so we’re showing that leadership not just through talk, but really through action. And I’m excited about the future of US uranium, when you look at this bipartisan support we have in the country, in Washington, D.C. and the recognition and importance of supply chain. And for us, it’s about the human capital. So Andrew, this is the last slide I want to show you before I hand it back to you, but our team of US based uranium professionals, and not just the individuals on the slide, but these individuals plus the rest of our team have over 100 years, to be exact 140 years of combined experience in the uranium industry. I don’t know of any other company that has amassed that type of brainpower and that kind of human capital base for a sector that has been dormant for so long.

This is so critical. Without the people, you can’t be a leader in this industry because the human capital side of this business is spin. And so individuals like Spencer Abraham, the chairman of our board, was a former United States Energy Secretary. Scott Melby, who has 37 years in uranium mining and leadership positions with the likes of chemical Kazotomprom and Uranium One. Other individuals here, I won’t go into each name, but again, capability and the experience from running the United States Department of Energy to some of the world’s largest uranium miners, over 800 years of combined experience in every facet of uranium exploration and mining and production. This is having all the key ingredients in one place to really capture the macro opportunity that we talked about at the very beginning. And I really kind of want to get into the macro if you like. I know this is Macro Hive, you guys are very macro full. So, over to you.

Andrew Simon:

Yeah I had a couple of just questions around price drivers. So what I remembered was, there was a kind of a difference between long dated contracts that were getting signed and spot price. Maybe start off, could you describe a little bit how the Sprott Uranium Trust works for some of the people that may not understand? And what impact you think that can have? And then are you seeing long term contracts from power companies or utility companies getting signed? And what is that environment like?

Amir Adnani:

I think for someone who’s not familiar with this, what you just asked, the Sprott Uranium Trust. I would really draw a comparison and I really believe this is that the impact that the Grayscale Bitcoin Trust had on the bitcoin price when it became an ETF, or if… It wasn’t really an ETF, it was a closed end fund that can basically go out there and acquire Bitcoin. That became a major catalyst last year for turbocharging the bitcoin price because it became a way for investors to more… In a more efficient, easy way to express an investment directly in Bitcoin. We didn’t really have something like that in Physical Uranium. And so in August of last year, we saw the launch of something similar to the Bitcoin Trust, the Grayscale Bitcoin Trust, the same thing was created in Uranium with an asset manager, in this case, named Sprott, which is a commodity focused asset manager with billions of dollars under management and doing the same thing in platinum and gold and silver. And the concept being that they turn what used to be called the Uranium Participation Corp into a trust with a mandate that said, they will purchase Physical Uranium on a daily basis when the fund trades at a premium to NAV. And NAV is published on a daily basis. So they’re see through NAV on a daily basis comes out. And so every morning when you walk in, if the Sprott Uranium Trust is trading at a premium to NAV, that they’re issuing new units. And the only thing they can do with the issuance a unit, the cash they raise is to go and buy more Physical Uranium. They never sell, they always buy. And they’ve grown this. I mean, they’ve raised over a billion dollars to buy physical uranium and buy it and put this away. And it’s created much needed price discovery and liquidity in what’s previously a fairly opaque spot market. And the beautiful thing is that after spending a billion dollars, they’ve got the capability to buy another billion dollars. And so volume and size begets more volume and size, in this… In that business of being a physical… An investment vehicle that’s expressing an investment in the physical, some underlying physical asset in this case is physical uranium. And so we’ve never had this in uranium.

Again, I go back to these points about how there are these game changing dynamics in the uranium market that we’ve never had before. And the almost 50 year history of the physical uranium market and the civilian nuclear programme, there’s never been a day to day see through NAV published by some fun and just being a day to day regular buyer of physical uranium. We didn’t have this in the 06, 07 bull market that saw the uranium price go to $140 a pound. We didn’t have this in the 2010 bull market that saw the uranium price go to $70 per pound. And it’s a self fulfilling prophecy. The more the price gains momentum, the more likelihood that this fund will trade at a premium to NAV, the second it does, it raises more money and then it just buys more uranium. It’s a fascinating dynamic. And so you think about this for one second, you’ve got the United States government with funding and plan starting next year and continuing for the next 10 years to buy up to $1.5 billion of uranium, brand spanking new, we never had that before. Sprott Physical Uranium Trust being a day to day buyer with almost limitless capability to buy more uranium as investment demand comes in, brand spanking new, we never had that before. And then you throw on top of all of that the Saudi Arabia of the uranium market on the supply side, Kazakhstan, but four times bigger than Saudi Arabia, almost a single nation OPEC in the uranium market, having the kind of geopolitical turmoil that has served as a wake up call to the whole market that says, “We can’t just be reliant on this one supplier, we need more sources. And the only way for new sources to come online is a higher uranium price.” So you’re talking about a convergence of events never seen before. And then layering in on top of that, the decarbonisation goals and the European taxonomy and the acceptance by governments and corporations that without nuclear power being a major part of the energy mix moving forward, this will never happen again. And finally, Bill Gates, his SMR plants. Breaking ground in Wyoming.

Andrew Simon:

So these are micro reactors?

Amir Adnani:

These are the micro reactors. And this has always been on the drawing board, this has always been maybe a plan or a dream, but it’s happening now. And in my 20 years, I have never seen the stars align in this way for nuclear energy or uranium. And I can tell you, if you had some of my colleagues here right now, Scott Melby would tell you, in his 37 years in this business, he has never seen the stars align in the way that they’ve aligned here and are aligning. And so it is truly the most exciting setup I have seen in the entire period that I’ve been building Uranium Energy Corp in the last almost 20 years.

Andrew Simon:

That’s awesome. I had a question on Kazakhstan. I had seen that there’s talk about taxing the mining companies there, I guess, the largest mining companies there, which I guess can impact the price but can also impact the new investment as well. But I had two questions. Do you have a view on taxes and how that can impact the market? And two, and this could be a totally silly question, I’m just thinking as you’re talking. Do they have supplies right now which if they needed to raise cash, that they could release that on the market and have a negative impact in the short term?

Amir Adnani:

Well, I want to bring you to this slide. Because I think everything we talked about, I think someone who’s listening to this right now might say, “Hey, can we get a bit more granular? Can we just get into it a little bit.” And this is a good slide is from Trade Tech, which is an industry… It’s an industry price publisher and they write all their supply demand models. And I think it’s really important that after everything we said, we actually come back and just look at the good old supply demand of the sector. This is a commodity, it is a depleting commodity, every pound of uranium that’s out there eventually gets consumed to generate electricity. People don’t make any jewellery with uranium and so we don’t have to worry about any of those aspects of it, it is good or supply demand. And this supply demand model here on chart really shows everything, it shows secondary supply. So that’s the above ground inventories that are available to your question right now. So when you look at, for example, the bar for 2022 in the blue portion of that bar shows the amount of secondary supplies that are expected to be available and come into the market. So that could be Japanese inventories, that could be just inventories that are not needed by a reactor that may have had a premature shutdown or something like that. And then on top of that, you get the production case. So this supply, primary supply from production that’s expected. And you can see, add the secondary supply to production and for 2022, you’re hovering around 155 million pounds and demand is almost 200 million pounds. So one thing I want everyone to take away here is that from a good old supply demand fundamental point of view, we have a structural supply deficit, we have it this year, we have it next year, we have it indefinitely until new uranium mines come online. Now, you don’t take my word for it, run a Bloomberg screen and do Google searches. There are no uranium mines that have been commissioned or are currently being built in the world today. In ’06 when we had the uranium bull market rally, there was a mine that was being developed, it was called Cigar Lake in terms of a significant large mine. And when that basically… It had a watering problem, it became a supply disruption but nonetheless it was being built and then it came online eventually. There isn’t another Cigar Lake currently under construction. What do I mean by Cigar Lake? Cigar Lake being a mine that could be five to 10% of global supply. There isn’t anything like that currently under construction, there isn’t anything even close to that, that is let’s say a year away from breaking ground.

Most projects are under development are going through permitting, permitting is time consuming. The most production ready uranium mining company on this planet is my company, Uranium Energy. But our Production Readiness is up to six and a half million pounds. So when you have a supply deficit of 30 million pounds per year, six and a half million pounds doesn’t change that, that’s my point. So we’re in an advantageous position because we’re the most production ready company on the planet. We have fully permitted mines, we have infrastructure that’s their processing plants in place ready to go. And we’ll do a great job supplying the needs of the United States and the US government and US utilities. But this is a global business. There’s 440 reactors operable in over 30 different countries. And the supply demand chart that you see on the slide is not only showing a supply deficit, but then the question I would put to anyone out there wanting to go build a new conventional mine. And I’m talking about Institute recovery, which isn’t an earthmoving exercise. Institute recovery is how the Kazakhs mine uranium. They leach the uranium out of the ground. It’s how US projects like mine plan to mine uranium. It’s a leaching operation. It’s a water moving operation. We don’t dig a big hole in the ground, hence, we’re not as capital intensive. You go look at capital intensive projects out there and they require billions of dollars of upfront capex, which means with… You saw this morning’s headline on inflation, 7% inflation, which… And that’s assuming you believe 7%. So if you don’t believe that, which I don’t, and you call it 10% plus, in today’s all time high record inflationary world with the tightest labour market, with every time you go to do something, I go to the local Starbucks and they can’t staff people, because they’re all catching COVID or don’t want to work or just want to sit at home, how are you going to build the mine? Building a mine is going to be way more costly, way more time consuming, even if all the stars align. And I think if… You’ve got to pay attention to this Andrew, which is look at the supply demand graph. And then ask yourself, if we adjust the uranium price of 2010, or 2007 for inflation, what would it be today? The 2007 uranium price adjusted for inflation today would be $190 a pound.

Andrew Simon:

Right. Well, what are the other things? I guess, obviously, that’s different is from 2007, as example, is the focus on – I didn’t even think, by the way, about the ESG angle with Kazakhstan, which is a great point – is the idea around focus on green energy and the move towards viewing new killer. And I think I also saw one of those polls about this is the most supportive American public has been, I think ever on moving to nuclear. In Europe, where I think we’ve had a couple of questions, people asking, what’s your view of the situation there? What’s your view of the situation in Germany and then also in France?

Amir Adnani:

I think at the end of the day, it’s… In Europe, it all comes down to the developments around the European taxonomy. I mean, that’s a game changer, we’ve never had that before. And so if you actually see… And I think the fact that it was even recommended and proposed for nuclear to be included in the European taxonomy, that in itself is a historic event. And so that, to me, is anyone wondering about the mood in Europe, that’s the news and development you got to pay attention to. And once that’s hardcoded and finalised, then again, it’s yet another game changer and new development that shows which way Europe is heading. And I think you-

Andrew Simon:

Were you surprised… I was going to say, were you surprised they included that considering Germany seems to be stepping away? Do you see Germany changing that stance or do you feel just the rest of Europe is going to move ahead?

Amir Adnani:

I think the German… Look, I would say I was surprised, perhaps, because maybe the timing I was surprised on. I wasn’t expecting it on Jan 1st, when that first news broke out about the member nations who had recommended it and then that was being put forward. I was surprised about the timing of it, because I don’t think we were expecting it on Jan first, it was a heck of a way to kick off 2022 for the nuclear industry. But longer term, I wouldn’t be surprised to see that happen. And part of it is because of what happened at COP26 and right before COP26. As you know that Boris Johnson and the UK Government came out with very integral announcements in terms of making nuclear power a centrepiece of their net zero pledge. Biden has made his net zero pledge in the US and it will not happen without nuclear energy. I think the reality is that there was much needed momentum that we gained out of COP26 and the announcements that came after and during which signalled to me that this is the direction we’re going. And I think it’s one where Germany and either comes along or will just be left behind and there’ll be developments and movements without Germany who’s paying more for electricity than his neighbour France, who has greater emissions than its neighbour France. And France obviously being the leading nation in Europe in terms of how much of its electricity it gets from nuclear and how it’s announced plans to literally double down. And we’ll see what happens in Germany. But the reality is that there’s a larger movement afoot here than just Germany. And it is about COP26, it’s going to be about COP27. It’s going to be about net zero. And I think we… This is the missing piece Andrew, compared to ’06, ’07. In ’06, ’07, there was a headline, it was called The Nuclear Renaissance. And The Nuclear Renaissance, they didn’t seem at the time to necessarily fit within a larger movements, it was a movement on its own.

Today, the support for nuclear energy, or if we look at today’s nuclear renaissance, which is really not a renaissance today. Today, this is kicking into next year, it’s part of a bigger movement. And that’s what 06, 07 was missing. Today, we’re part of a bigger movement, a necessary movement and one that’s gaining traction with the largest global corporations. Everyone from Microsoft to Walmart, to Blackrock has now come up with a net zero pledge of its own. This is not a political debate anymore, this is to me what almost overpowers the German political decision around nuclear, is that there are the 40% of Fortune 500 companies have made some kind of net zero pledge. This is corporate movement. You look at the stats that have come out about the importance of green bonds. A big part of green bonds are going to be carbon quantification or carbon emissions. If you can show you’re driving down your carbon emissions, you as a corporation will lower your cost of capital.

This framework of thinking has never existed before. And this framework of thinking and development coupled with inclusion in the European taxonomy has one very clear winner, nuclear energy. And again, this setup has never existed before, now you parlay that into the supply demand chart, you then triangulate that with the Sprott Physical Trust, which could end up all of a sudden cornering the market before the utilities wake up and do their own contract thing. And it’s really a dream setup for any commodity. And can’t I think of any other commodity that has this type of setup right now.

Andrew Simon:

Yeah. I just had a question about this Sprott fund, who do they… This could be a silly question, who did they buy the uranium, the physical uranium from?

Amir Adnani:

There are a number of financial intermediaries and producers who may have the need to sell in the spot market. The spot market roughly is 25% of global volumes. 75% would be under long term contracts. But as the spot market has become more liquid, because of Sprott, you’re going to see more spot sales. And that’s really a totally normal thing as well, because you look at copper, you look at oil, you look at commodities that are LME listed or have had more liquidity on a day to day basis. And there is a spot market and uranium has always at a very illiquid spot market, but that’s really changing. And so I think as one long term side effect of Sprott’s existence in the physical uranium market, is that we may very well very much tilt towards being a 50-50 market, where Sprott is 50% of global volume and long term contracts are there as well. Why? If you have attractive price and volume available in the spot market, why wouldn’t you do what most mining companies and other commodities do, which is try to capture spot. And that’s important because a lot of investors want to see direct exposure to the commodity price. I mean, if you look for example, at the latest quarterly, the chemical product, chemical was selling uranium under contracts at $32 a pound and uranium market is a 45. Well, if you’re an investor, aren’t you frustrated by that? Because you feel like management’s leaving a lot on the table. So that’s why the world’s biggest mining company, BHP, has a no contracting policy and everything they mine is sold on a spot basis. So the problem we’ve had in uranium is that our spot market was too illiquid for the longest time. So I think it’d be interesting to see how Sprott becomes a bigger entity, which everyday it’s becoming a bit bigger. As it continues to grow and it’s the snowball effect, how that also makes the spot market for uranium larger, more dynamic and more liquid.

Andrew Simon:

And then on the long date, a few people asking are you seeing utilities looking to sign new long term contracts? And let’s just say over the last 12 months, is it about where you thought it would be with all the factors we’re discussing? Are you surprised it’s not more? Can utilities also buy? I guess, can they also address demand by buying spot or is it pretty much they’ll trade five, 10, 15 year forward or futures contracts? And where is that spread roughly now?

Amir Adnani:

Well, I think, first of all, you got to remember that, in the context of answering that question, we… I should remind everyone or highlight the fact that both Kazatomprom and Cameco, over the last year have also been buying uranium, because they have long-term contracts that they need to satisfy through spot purchases. For example, in Cameco’s case, their… One of their largest mines, MacArthur River has been on care and maintenance since 2017, or so. And so it’s been an unusual market over the last year, because… I mean, it’d be an unusual market for anything, it doesn’t matter if it’s uranium or widgets. If you were like, “The natural buyers are competing with the suppliers. Well, hold on a second, the supplier should be supplying this stuff, why are they buying the stuff that they’re supposed to be supplying?” That’s been the uranium market for you.

Andrew Simon:

Wow, it’s crazy.

Amir Adnani:

And so the fact that you also continue to see the world’s number one number two biggest producer, continue to be a buyer moving forward for now, is fascinating. But I think the last six months to 12 months have performed really well. I’ve been actually surprised by the amount of volume and activity that we’ve seen. Look, the price has gone up by over 50%, that’s a massive move. That’s nothing to really be critical of or anything, I just think it’s been a great move. And I think that utilities will always prefer to buy under long term contracts. Utilities are big old conservative organisations. Uranium makes up a very small percentage of their costs. They don’t want to be distracted too much with uranium procurement. And that’s why the behavioural patterns of the utility purchasing is what’s driven the contracts to be a bigger volume of overall transactions in the uranium market. So if they could have it their way, they’d rather just treat this the way a purchasing manager would buy the uranium, have it be fixed dates, fixed deliveries into the future and then that would be their preference.

But they’re slow-moving organisations, a 50% move in the raw material that they’re buying after it’s been sitting at $30 a pound for so long would create a bit of shock and a little bit of wait and see. And I think the real next leg up in this story is when this price that we’ve seen move up by 50% consolidates in and around these levels. So it doesn’t look like a spike, but really looks like a new entry level. And I think we’re going to see the next leg up once we see more volumes of contracting take place. And I think some suppliers like us will think about this really hard and ask themselves, “Should I be signing a contract here? Or should I do what UEC is doing, staying 100% unhedged?” Because look, I think my investors love the fact that we’re 100% unhedge. They love the fact that we’re not leaving a dime on the table, that uranium is at 45. I’m not selling at 32. We’re actually buying at 32. We bought 4 million pounds of uranium at $32. So, I think if you’re investing in this sector, you have to really ask yourself, what is the mindset of the management that is running the company? Do they have skin in the game? As an entrepreneur, I’m the largest shareholder of my company. The people that run Cameco and Kazatomprom are not the largest shareholders in their company. They haven’t built these companies like their own kids from the ground up. And this is a big difference between when you have a founding entrepreneur running a company and our expectations of the market is to be 100% aligned with what our investors want, which is to be 100% unhedged and that’s going to serve us well as this market unfolds. If you believe in the macro that I just laid out to you, believe in that, you should be 100% on hedged. If you say all of that and then you go hedge up $32 per pound and that tells me you don’t believe the macro, so.

Andrew Simon:

Do you have a price target for Uranium for the end of the year?

Amir Adnani:

We don’t have a target. My own feeling is that obviously, the… We’re in the early innings of a new uranium bull market. As I mentioned, I’m not seeing anyone announce major mine development at $45 per pound. And so naturally, the uranium price has an incentive level that is north of where we are right now, pre COVID and pre seven to 10% inflation, that widely number was $50, which is what everyone used to throw around. What we’re doing today on our own projects, is looking at updated costs to restore our uranium mines that we just purchased in Wyoming, for example, from Uranium One and see what that incentive level is. Is it $50? Is it $55? We’re evaluating that now. But I can tell you, the whole industry is in the same place. Everyone’s dealing with the same inflationary pressures and labour market pressures that affects the whole world, when it comes to everything. And uranium mining doesn’t function in some silo or vacuum on its own, it’s going to be highly correlated and impacted by the same dynamics in the world around inflation, around labour, around supply chain of raw materials that are needed for uranium mining and as they are for any other kind of mining.

Andrew Simon:

Okay, that’s great. I think that’s a lot. It’s definitely a lot. I have to say, I particularly enjoyed it, because I told you, I’ve had an interest in uranium for a long time. And I think the way that you captured it with the rationale of why I thought uranium and obviously, nuclear could be very interesting, five, six years ago is way more applicable now. And now, I think that the idea, certainly Europe, the US, I mean, this has all been super interesting and I think you touched on a lot. It’s been a good mix. I just want to quickly put on, obviously, none of this is an investment advice. Everyone make up their own decisions. But most important, I hope people really enjoyed it, I certainly have. Maybe we can have you on again towards the end of the year and we can follow up on this.

Andrew Simon:

So thank you so much. I would say this has been one of our more popular expert speaker series we’ve done. And I think it’s gone great, so really appreciate it. Thank you so much.

Amir Adnani:

Hey, my pleasure. It’s a lot of material and ground to cover in one hour, but we did our best. We’re available for follow ups. Our website and my information that I put out on Twitter is also good sources of information for anyone that wants to follow up. And yeah, I’ve really enjoyed this. Thanks for having me Andrew and hopefully we can do it again soon.

Andrew Simon:

Cool. Thank you so much. Thanks. Bye.

Amir Adnani:

Thank you. Bye.

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)