Can you tell us about Tribeca’s Nuclear Energy Opportunities Fund? How has it been performing over the recent months?
Guy Keller: We launched the Nuclear Energy Opportunities Fund almost six years ago now and spun that down from our Global Natural Resources platform.
We’ve done just shy of 400% return net of fees since inception, which has outperformed the sector ETFs and pretty much any basket of larger uranium companies.
It’s been a good trade so far, the sector is coming off a really low base from where we’re seeing things.
Last year, the Sprott Physical Uranium Trust was launched, and this helped to move the uranium price to a 10 year high.Has this trend continued into 2023? Where do you see pricing moving?
Guy Keller: The Sprott Physical Uranium Trust traded to a premium NAV in January this year and we saw a flurry of activity, and that structure hoovered up just under 2Mlbs of uranium from the market.
It felt like we were just getting to the breaking point of available supply in the spot market and then that trade rolled over, which is probably to the relief of some of the physical traders.
Many people pointed to the fact and said, “This is not working,” but there was an extended period where the Sprott physical vehicle was not buying pounds in the market. And there was not a huge amount of activity elsewhere on the buy side.
Remember that there is ongoing supply that comes into that market from various sources who are producing, so it wasn’t a surprise to me. It was a shame that we couldn’t continue it a week or so longer.
Nevertheless, that is a momentum structure. The appetite for uranium exposure comes in, the Sprott vehicle trades to a premium as a result of that, the market facility is activated, that cash is then deployed into the spot market, hoovers up pounds, the spot price goes up, and equity investors then continue to buy more uranium juniors; and this is repeated.
When the appetite is there for it to trade at a premium, it’s very effective in moving things higher.
Brookfield Renewable Partners, one of the largest investors in clean energy, has stated that nuclear energy now fits their investment criteria. How has this affected other ESG focused investors?
Guy Keller: That news was huge. To me, that was a real groundbreaking moment for the sector.
At the time, a lot of people focused on the Cameco part of the deal, saying Cameco is not a pure play anymore, but Cameco was never really a pure play because they had some vertical integration already.
People missed the perspective there that Brookfield Renewable Partners is the biggest renewable energy project investor in the world. They’ve got 125GW of projects in production or being built, and they’ve basically given a tick to nuclear as green energy.
Cameco are very open in saying that they’ve seen a huge increase in inbound query from renewable, from energy transition, and from ESG investors, who are saying, “We need to understand what this is, what it’s all about, and why it’s now part of our universe.”
When that deal closes in Q3 of this year, and the economics of that deal become more visible to analysts, firstly, Cameco is going to do a big re-rate on that. Secondly, it will certainly open the door for a lot of other like-minded investors to start seriously considering where they should be investing in the space.
Do you think it’ll start to push the needle on people’s perspective on nuclear and uranium?
Guy Keller: Yes, definitely. That needle is already being pushed.
Just because the junior mining stocks in the uranium sector are at two year lows means nothing in the grand scheme of the nuclear sentiment, because there is so much activity going on; not just in the physical market itself or the nuclear fuel cycle that will play down to uranium, but from governments, green groups, ESG, and the energy transition.
Energy security is a huge topic that’s front and centre of government’s minds, and nuclear fits that bill. Plus, you’re adding that on top of all the decarbonization, electrification movement, and momentum. It’s going to be a big shift.
Let’s look at some of the global macro impacts on the market. There’s the ongoing Russian invasion of Ukraine. Previously, you addressed the risk of nuclear reactors given the war, along with the severe supply deficit of uranium. Are there any developments here? How big is the risk to the global market?
Guy Keller: There’s a good reason as to why you have not seen sanctions on Russian nuclear fuel being passed through the USA or Europe, and that’s because Western utilities need that material.
Russia is one of the biggest suppliers of conversion and enrichment services, the West doesn’t have too many other options at the moment.
What we’ve seen in anecdotes from the recent Nuclear Fuel Conference in The Hague, is that there’s been a huge amount of discussion with Western utilities and suppliers of conversion and enrichment services in order to diversify that supply away from Russia and solve some of those bottlenecks from 2027 onwards, assuming the Western world decides they don’t want to rely on Russian material.
People have asked if there’s a resolution between Russia and Ukraine, will that change things? I don’t think it does. To the point I was making earlier about energy security, governments do not want to be reliant on one nation for a critical part of their energy supply, whether that’s gas under Europe or whether that’s nuclear fuel from Russia for nuclear power. I don’t think that reverses in any way.
Urenco, the European Enrichment Service, have said that they’ve seen a massive increase in long-term contracts. Instead of locking in five-year contracts, they are now locking in 20, 30, or 40 year contracts. That’s given Urenco the confidence to say that they can expand their enrichment capacity into the next decade to be able to respond to that demand.
Are there other kinds of projects in the pipeline that can suitably fill that supply gap if other countries move away from Russian supply?
Guy Keller: Yes, the conversion bottleneck can be solved, and there’s enough Western capacity there. The enrichment bottleneck, assuming the investment and commitment is there from the utilities, requires some CapEx. Of course, Cameco and Silex talk about their Global Laser Enrichment (GLE) technology, which could help that process.
From the uranium perspective, and this is where the crunch point’s going to happen, everyone’s saying, “We’re not seeing it.”
Last year, in 2022, there was 115Mlbs of contracting done by utilities. Most of that was with Cameco, and that was the largest since 2010.
In May this year, that number was up to 99Mlbs. So five months into the calendar year, we’re almost at exactly the same amount we did as last year.
Remember, the market requires around 170 to 180Mlbs a year to replace what they’re consuming. And they’ve had one year of doing 115Mlbs and this year of doing more.
Will they get to 170Mlbs? Probably not, but that’s on top of a decade of non-replacement.
That’s where the crunch is going to come in uranium as that feeds through. You can have the best conversion and enrichment contracts in the world, but if you can’t supply the uranium to those converters, it’s not worth the paper it’s inked on.
We’ve seen some uranium projects funded to production, and that’s great; they will get to production in the next six to nine months. There are also some smaller in-situ recovery projects in the USA that are ramping up.
After that, there’s a long gap between what’s next. That’s what the utilities are starting to wake up to now. They’ve picked a lot of the low hanging fruit, and the only way to properly incentivize investment dollars to support those projects are higher prices. Once you get those higher prices, you then must navigate the complex labyrinth of jurisdiction, of community, and all those sorts of things too.
It’s not just price, but price does need to be higher.
You’ve recently moved into nuclear innovation. How is the next generation nuclear technology market evolving?
Guy Keller: There’s plenty going on, you’re seeing lots of press, especially in North America, around small modular reactors.
Bill Gates has a lot of publicity around what he’s doing with his technology; NuScale, being the only design so far approved by the US Nuclear Regulatory Commission. More recently, Westinghouse Electric entering the field with a 300MW platform, which is aimed 100% at slotting itself into old coal fire generation plant sites.
There’s starting to be more publicly listed opportunities in that space, and that will continue to grow.
That’s one of the reasons why we launched just Nuclear Energy Opportunities and not a uranium mining fund. We are more mining than technology specialists, but we recognized that there would be an opportunity at that other end of the technology spectrum where we should and could have a look at investing.
Finally, what are your thoughts on how the industry overall is going to perform over the rest of the year?
Guy Keller: There’s been melancholy and depression around the performance of junior mining stocks, especially in the uranium sector. There’s a lot of macro noise that’s taking the investment away from the smaller end of town, and people want to focus on the larger caps, which is why you’ve seen Cameco outperform. Even then, they’re dancing close to the door.
The reality is, when the market does move, it moves very quickly; we saw some ASX names go up 10 or 15% on the day in early May.
However, that’s off lows. We’re not anywhere near the highs we made in September 2021, when the spot price went up to US$63.80. We’re sitting at US$53, up from US$48. So, the spot price is inching higher.
We don’t have to break new ground on price, assuming we’re all looking at the spot price. I don’t like looking at it, but that’s where investors focus because that’s their one point of visibility for the market. Assuming we get back up to that US$63, there’s a huge amount of runway for junior equities to get back to those levels without breaching new highs.
As I have said before, US$63 is not getting me excited for a greenfield project to come to me and say, “I want some money to go and make a final investment decision.” I need a higher price. I want more certainty that they’re not going to sign a contract with a utility in order to get themselves into production and give away the upside.
Where is that upside? It’s extraordinarily hard to tell where it goes. Last cycle, there was a bank report done on uranium, and they looked at the price moves in the 70s, where the spot price rallied 500%, and then in the 2000s, where it rallied 1800%.
In the beginning of this cycle, we’ve had a 100% increase in the price of uranium. If history is a guide, the equities will do multiples.
There are plenty of exciting things happening in the sector.
The catalysts are there, and there’s plenty of information that’s available for investor education; and not just political posturing here in Australia as to whether we’ll ever reverse the ban on nuclear power.
What Australia does is irrelevant to my investment thesis. However, it would be nice if we put ourselves in a position to consider all the options for a reliable and low carbon electricity grid for the benefit of future generations.
Eventually, the market will wake up and people will say “What is this thing? I probably need to get involved in it,” because it will be a multi-year cycle
