Bloor Street Capital Nuclear and Uranium Conference

Bloor Street Capital's Nuclear and Uranium Virtual Conference featured John Ciampaglia, CEO of Sprott Asset Management, and Per Jander, WMC Energy, Director, Nuclear & Renewables,  interviewed by James Connor, Managing Partner at Bloor Street Capital. The entire conference is available here.

Watch John Ciampaglia Interview

Watch Per Jander Interview

Video Transcript: John Ciampaglia

James Connor, Bloor Street Capital: John, you and your team have been very busy developing new products for investors to capitalize on the energy transition theme, and I want to discuss these new products. But before we do that, let's spend a few minutes on uranium, seeing how this is a uranium conference. And why don't we start with an update on the Sprott Physical Uranium Trust or SPUT? When you and your team took it over in July of 2021 I believe the NAV was 600 million and it held approximately 18 million pounds of uranium. Where does it stand now?

John Ciampaglia, Sprott: It's been a very busy start to 2023, and my team is very happy with that because last year obviously was a bit of a challenging year. Sprott Physical Uranium Trust just recently crossed the 60-million-pound mark. We continue to take investor interests when we're trading at a premium to NAV, and we've been stacking more material, and the stockpile continues to grow slowly. We definitely think that 2023 has ushered in, I think, that it's a new year, with new hope, and new expectations that the sector is going to continue to move along. It's what we believe is a bull market.

The fundamentals, if you talk to many long-time industry participants, many of them will say to you that we've not seen the fundamentals as good as this in their 40-year careers. We're relatively new in the segment, but when you hear people that have been in the segment for 30 or 40 years talk about what's going on around them — from a fundamental perspective, from an energy policy perspective, from some of the geopolitical risk perspectives — I think it's a very interesting time to be investing in uranium.

James Connor, Bloor Street Capital: Once again, just to summarize, you went from 18 million pounds to over 60 million pounds. That's a lot of uranium.

John Ciampaglia, Sprott: It is a lot of uranium. But I think to put it into context, we're seeing a big pickup in demand for uranium globally. Last year, one of the industry consultants published that 114 million pounds in 2022 were sold to utilities under long-term contracts. We think that number is understated. We think the real number is substantially higher than that. And the reason we say that is because Cameco alone has told us that they've done about 80 million pounds through long-term contracts last year alone. We think that the industry clearly has done more than 34 million in total.

If you think about all the off-market transactions that are also happening, we think that number is substantially higher than 114. Why is that important? We think it's a key signal. First of all, it's the highest amount that utilities have procured in the last ten years.

More importantly, it's a clear signal that utilities are feeling much better about their operations and that they're finally coming back to reload their inventories. We know the SPUT market is the smaller of the two markets. The term market is really where the bulk of the contracting happens. And utilities coming back to the long-term contract market, buying larger quantities with larger durations, with market-based prices — I think those are all very healthy signs and signals that the health of the industry is recovering. We think this is a key part of the thesis that the industry needs to recover from a multi-year bear market and that we're still in the early stages of this recovery.

James Connor, Bloor Street Capital: As you mentioned, the SPUT product has been relatively busy here in the last few weeks, and spot uranium is up 8% of the year, give or take. I want to get a better sense of what's happening in the spot market. And are there still pounds available or is the market very tight? Would you be able to acquire a million or two million pounds if you had to?

John Ciampaglia, Sprott: We've acquired about two million pounds this year, so I think it's fair to say that there has been material available to us. It clearly ebbs and flows. Some days you don't find a lot. On other days people are willing to offer new material. I think there is some seasonality in terms of how you start the new year. We saw this last year as well. And there tends to be a little bit more mobile inventory towards the beginning of the year. We have been able to procure.

As you said, the price is up about 8% where we've gone from about $48 a pound on January 1st to just shy of $52 today. That's obviously a good start to the year.

Now, what's driving that, obviously, is a lot of utility demand in the background. It's hard for us to piece it all together, because as I mentioned earlier, a lot of these transactions are done off-market, meaning they're not reported to the marketplace. These contracts, we believe, are pretty sizable, and they're growing in numbers. Utilities think very differently about their long-term needs as reactors are getting life extensions. Reactors are coming back online, for example, in Japan. New reactors are being built around the world. I'm not even talking about the next generation of reactors, which are still several years away.

Now, you layer on that the uncertainty around potential sanctions or retaliatory sanctions that, as we're coming up to the one-year anniversary of the invasion of Ukraine, is still making utilities nervous.

There are numerous bills floating around proposing different actions to sanction Russian uranium as well as Russian enrichment and conversion services. These bills, they're being talked about, but at this point, they don't seem to be imminent. And I think the reason why they haven't been implemented as far, in contrast to many other commodities and services that have been sanctioned, is that clearly the utilities went to their respective governments and said, "Look, we've signed these agreements with the Russians.

If we don't continue to take delivery, we could be at risk in terms of securing enough conversion and enrichment to keep our plants running." And that obviously caused governments to take a pause and reflect on the reality that we've offshored a lot of this supply chain to Russia over the last few decades. And that in order to reshore this supply chain, it will take anywhere from two to probably six years.

The additional capacity that the Western countries need can be built, but it will only be built if there are long-term contracts awarded to them at obviously [an] economic crisis to make the capital investments necessary to scale up these operations in France and Canada and the United States.

We think ultimately there will be some form of sanctions. We think it will be a transition period. That doesn't mean that utilities aren't thinking about the potential risks, whether it's logistical risks or insurance risks of shipping material. I think all of these geopolitical factors have clearly acted as a catalyst to make utilities think very differently about the potential disruptions of risks to their supply of uranium and different services.

James Connor, Bloor Street Capital: You raise some very good points, especially from a geopolitical point of view. The U.S. is beholden to Russia right now for uranium and the various services that it offers. I guess there's really not much you can do because these are long-term effects, right? You just can't wake up one day and say, "Okay, I'm no longer going to deal with Russia," because you have no place else to go to get the pounds.

John Ciampaglia, Sprott: Exactly. I think there's a very interesting report that was published by the White House in June of 2021 that basically lays out the blueprint for reshoring a number of critical industries. Those involve things like pharmaceuticals, computer chips and critical minerals for batteries.

The U.S. government has clearly acknowledged that they can no longer rely on certain nations for these supply chains. These are key elements and minerals related to energy security as well as national security. And you're starting to see this bifurcation happen, this deglobalization, as some people are calling it, and this basically reshoring or reindustrialization that's happening.

What we find really interesting across this broader theme is that the Department of Energy and the Department of Defense is now starting to make strategic investments in specific companies to ensure this reshoring process takes root.

For example, we've recently seen the Department of Energy make several loans to companies in the lithium space or in the battery material sector. This is really important to take notice of for investors. When the government starts making equity investments or extending loans or backstop loans to different public companies, it tells you what they're concerned about. They're clearly concerned about not having places like China or Russia control important supply chains.

Rare earths are obviously another topic that people are concerned about. Battery manufacturing for EVs is obviously something that today is dominated by China, and governments in the UK, the EU, Canada, and the United States are clearly focused on encouraging and incentivizing local primary production of these materials and their processing, because many of these minerals have to be turned into chemical form, so you need key processing capacity. Obviously, the last step is the manufacturing of the end product and putting it inside a finished good.

The Inflation Reduction Act is clearly focused on this reshoring. The tax incentives related to electric vehicles and renewable energy are very clear to us what is going on underneath the surface.

We think uranium is another element that governments around the world are very focused on. The U.S. made its first million-pound investment in uranium to establish a strategic uranium reserve. In the past, the U.S. government held large quantities of uranium. That obviously has changed over the years. Their initial investment, we think, is a good sign that they're thinking about the critical nature of many of these materials.

James Connor, Bloor Street Capital: You raise a lot of very interesting points. And as a reminder to our viewers, the U.S. is the largest consumer of uranium. They consume approximately 50 million pounds a year. And as you mentioned, they did start a strategic uranium fund, but a million pounds is rather insignificant compared to what their annual needs are.

John Ciampaglia, Sprott: Absolutely. Last year, U.S. primary production of uranium was just under 400,000 pounds. The year before production was 20,000 pounds. The wheels are slowly turning in terms of turning primary production uranium back on. Many companies are in the process of evaluating whether they can do that and at what price points, they need to see as incentives to turn these operations back online.

We think it's inevitable there will be more production of uranium in the United States. Obviously, in the interim, the United States is relying heavily on key countries like Canada and Australia for their uranium needs. I think if you look at what's happening in some of the uranium states, like Wyoming, for example, which is a historical producer, Senator Barrasso there is very keen on restarting their local industry in uranium.

James Connor, Bloor Street Capital: That's a great overview of the spot, the term, and also some geopolitics in there. But why don't we move on now? I'm curious to hear what investors are saying. You speak to institutional investors all over the world, and given the positive backdrop and also the move that we've seen year to date in the uranium price, are you getting a lot more inbounds?

John Ciampaglia, Sprott: We saw a noticeable pickup just coming out of the start of the new year in terms of institutional investors reaching out to us, either existing investors that had signaled to us that they had been accumulating positions in the uranium trust over the fourth quarter, which was great to see. They saw the value opportunity there when the trust was trading their discount to NAV.

But we've also had some new investors reach out to us saying, "Hey, this is an interesting thesis to us. We're doing research on it. We'd like to talk to you about it." Obviously, that's great, too, seeing some new people come into the sector.

I think in general, we've seen a sea change in the level of interest related to uranium and energy transition materials and mining in the last couple of years from institutions. Prior to that, I don't think there was much interest whatsoever other than a few pockets of some contrarian investors. But we're starting to see more and more investors interested in this topic. Now, why are they interested in the topic? Because there are big energy policy shifts that are already underway that are going to incentivize significant investment.

As we talked about earlier, certain OEMs [original equipment manufacturers] — these are the car makers, for example — are starting to make strategic investments down into their supply chains to ensure the security of supply. The car makers have pretty lofty goals in terms of transitioning away from internal combustion engine vehicles to EVs.

In some countries, it's being mandated. The European Union clearly wants to phase out entirely sales of new ICEs [internal combustion engines] in the future. And if we want to do that, if we have any hope of doing that, we're obviously going to have to reinvent all of our supply chains, and critical minerals and raw materials are obviously very top of mind for the publicly traded companies, the private companies, as well as the local governments. They want this to happen, and they're providing the right incentives and tax credits to spur this local production and manufacturing.

The big issue is obviously permitting regulations. Mining is very complicated, and we obviously have to do it sustainably. I will also make another comment that when we talk to investors that are focused on energy transition, there is a heightened level of awareness and focus on ensuring that these supply chains are clean. They do not want to be investing in mining companies that are supporting or enabling the energy transition and then find out that these companies are destroying the environment or local communities.

There's a very high standard being placed on these companies focused on these energy transition materials. I think that's very important. It's very important to encourage investment in the sector if people feel it can be done responsibly.

James Connor, Bloor Street Capital: John, we discussed SPUT and what's happening there in terms of flows. What is going on with the Sprott Uranium Miners ETF?

John Ciampaglia, Sprott: Sure. Uranium stocks had a very challenging year last year. We talked to a lot of investors who clearly were frustrated. They saw uranium price end the year with a small single-digit percentage gain, and yet the stocks were down 15 or more percent depending on the company.

This year, we've seen a nice bounce in the uranium stocks. For example, in the month of January, they were up 15% on average, which is a great bounce. I think people are starting to realize that the commodity price and the related miners are obviously two different animals. The commodity has different fundamentals.

The stocks obviously have very company-specific things going on within them, but they also tend to have a moderate level of correlation to the just general stock market. And so when you see general stock market sell-offs, it doesn't matter how positive the fundamentals are for the commodity, sometimes those related stocks can sell-off. And we saw that last year. We're starting to see the uranium stocks outperform the general stock market. I think that's a very healthy sign that interest is coming back into the sector, and people are saying, "Hey, the stocks look cheap here relative to the commodity, which is starting to improve again. I think the stocks look like a better opportunity."

Having said that, we're not seeing massive flows come into our uranium mining sector ETFs. We've had maybe $25 million of net sales. The largest competitor, by the way, is down about 30 million for the year. So, net-net it’s a wash. There isn't a huge amount of capital coming into the sector, but the stocks have obviously performed pretty well year to date so far. We’re starting to see some improvement in relative performance, but we're not seeing the money flood in again.

I think people are clearly sitting on the sidelines, not just in uranium stocks, but with many, many different sectors. People are still nervous about Fed policy. Are we getting close to the end of the tightening cycle? Are they going to keep raising rates and putting more pressure on equity markets? And until we get a little bit more clarity on whether we're getting closer to a pause, I think markets are going to remain volatile, and money is going to be ebbing, flowing in and out.

James Connor, Bloor Street Capital: You and your team recently rolled out a new product, the Junior Uranium Miners ETF. Maybe you can just tell us a little bit about this product and also how it compares to the Sprott Uranium Miners ETF.

John Ciampaglia, Sprott: The Sprott Junior Uranium Miners ETF launched at the beginning of February. From all of our discussions with investors over the last couple of years, we realized that there's a segment of investors who are very focused on the physical commodity, a group of investors that want to take a broad approach across the producers, developers and exploration companies, and hold a little bit of the physical uranium itself. And that's the Sprott Uranium Miners ETF.

And then finally, there's a group of investors that — let's call these guys the Super Bubbles — who want maximum operating leverage, maximum optionality to a higher uranium price and exploration upside. What we've done is work with Nasdaq to create an index that focuses exclusively on the development companies, the smaller producers, and their exploration companies. If you want to focus on the segments of the industry that have — in a bull market historically — the most operating leverage but albeit the most volatility and lower levels of liquidity. We wanted to provide a range of options across the uranium sector.

James Connor, Bloor Street Capital: John, that's a good overview of your uranium products, but you also developed three other products that benefit from the energy transition. Why don't we start with the Sprott Energy Transition ETF? What exactly is it, and how can it help investors?

John Ciampaglia, Sprott: Again, we worked with Nasdaq to co-develop an index that we thought was a very good representation of the types of minerals that we think are going to be in critical demand to enable the energy transition. What does that all mean? We think we should include companies that are involved in lithium production, copper production, uranium production, nickel, cobalt — these are all critical minerals for the generation of electricity in cleaner forms. Those could be everything from nuclear power plants, solar farms and wind farms. And what do you need for those? You need things like uranium, you need silver for solar panels, etc.

Then we have to think about if you generate this power, how do you move it around? Copper is obviously the key transmission element. Copper is critical for transmission, but it's also critical for things like EVs, which use much more copper in them than the traditional ICE.

And then, when you think about the last stage of the cycle, which is storing energy, that basically comes down to batteries. If you think about batteries for EVs, what do those require? They obviously require lithium, nickel, manganese, cobalt, graphite.

We’re focused on the upstream companies that we believe are best positioned to deliver these critical minerals. We’re focused on upstream companies only, not midstream and downstream. And so, it's a pure play. These provide pure-play exposure to upstream companies related to energy transition materials.

James Connor, Bloor Street Capital: John, spot lithium has exploded in price in the last few years. It was up over 400% in 2021. It was up over 150% in 2022, and that's all driven by the surge in EV demand. And you developed another product for investors to capitalize on the growth in EVs and also the lithium price, and that is the Lithium Miners ETF. Why don't you tell us about this product?

John Ciampaglia, Sprott: Lithium is obviously, I think, an element a lot of people are aware of. Lithium-ion batteries are obviously the key technology for many of the things that we use in our day-to-day lives. But where the big increase in usage related to lithium is going to come from over the next 20-odd years is going to be obviously EVs. Whether you have lithium phosphate iron batteries, which are the dominant form in China, or nickel-based cathodes, which are preferred in Western markets, lithium is the common element across both of those key battery technologies.

We saw the price of lithium over the last two years essentially go parabolic on us. It was the best-performing commodity over the last two years. We have since seen the price moderate a little bit. What was driving that? What was driving those price gains? It was basically shortage. In 2022, we saw record-high EV sales around the world, and we believe EV sales are essentially hitting a tipping point right now.

What I mean by that is that when you look at the adoption historically of different technologies, when you hit around 10% adoption, that represents a tipping point where essentially the growth accelerates from that point. Greater adoption and acceptance, cost economies of scale, costs come down, and it basically encourages more and more adoption. We think EVs are at that point.

Obviously, the Inflation Reduction Act is going to be a huge catalyst in the United States in terms of providing EV subsidies for made-in-America EVs. That's important. You can buy an EV with a battery made in China. No, the battery needs to be made in the United States. This is starting to shift big investments back to the United States in this supply chain, which we think is really important to take note of.

Eventually, more lithium will be produced. There's no doubt about it. There is a supply response coming. There is obviously a very high incentive price, but it's going to take time. This is the challenge with commodities in terms of developing them. If you wanted to build a new gigafactory, it might take you two or three years. If you want to build a new lithium mine, it might take you eight to 15 years. You've got this timing mismatch. People want to build more cars, but bringing on these new developments takes a lot of time. As I mentioned, permitting is a big issue.

What we see going on right now is obviously the lithium race happening. Places like Nevada, I think are going to be big winners here. The U.S. government is starting to back companies there because there are lithium deposits that the U.S. can produce on local soil.

Clearly, the U.S. government does not want to be beholden to China for all of its battery manufacturing. This is going to obviously spur a lot of investment. It could distort the market a bit when governments start to intervene in free markets. This is possible. But I think this is now a key policy goal, and I would say to some degree to say national security and energy transition, energy security-related goals that are driving these policies. I think it's important that we reshore a lot of these critical industries that we've, unfortunately, over the years outsourced to places that we cannot rely on to the same degree going forward.

James Connor, Bloor Street Capital: You raise some very interesting points. One of the things that really stands out to me in this sector is how aggressive the OEMs have been in trying to secure lithium supply. Tesla has signed numerous offtake agreements with various producers. Just recently, General Motors made a $650 million investment into Lithium Americas. I'm curious to hear your thoughts. Do you ever think we'll see utilities doing this with the uranium producers?

John Ciampaglia, Sprott: I don't know. It's a great question, but I find the equity investments that the OEMs are making in some of these mining companies fascinating. You just wouldn't have imagined this would happen five years ago. They obviously weren't concerned about the security of supply, and they weren't concerned about procuring materials from around the world, but the landscape has changed.

Not only that, but when pieces of legislation like the IRA are enacted and those incentives only apply to local production, you need to think very differently. As a car company, if you want to be able to receive those EV subsidies, you need to find local production, local sources. We think that these mines in, let's say, Nevada or wherever in the United States, are going to be very important to resource some of these services.

Car companies obviously are not in the business of making equity investments in mining companies. I'm sure it's the last thing they want to do, but I think they are sufficiently concerned about this transition. And it is pretty meaningful when you look at the goals that some of them have over the next 10, 15 or 20 years. It's a massive retooling of all of their production, and it's going to require critical minerals to do that, and they want to make sure that they have security of supply.

And if it means making an equity investment to get the front of the line to secure that production, they're going to do it. I think it's a very telling sign to investors about how important raw materials are in order to enable these transitions to happen.

James Connor, Bloor Street Capital: There's one other ETF I want to mention before we wrap it up. Sprott developed a junior copper miners ETF. I find this interesting because BHP recently reported its quarterly numbers, it also said in its commentary that it wants to focus on future-facing commodities, which include copper and nickel and less on coal. Maybe you can tell us about this new copper miners ETF.

John Ciampaglia, Sprott: Sure. We think copper has a very bullish outlook. It's not going to have the wow factor, and the big moves like you've seen in, let's say, lithium or cobalt. But it's critical – it's the backbone of all things related to electrification. The reality is the big copper mines around the world are getting old and grades have consistently been coming down at some of the largest mines in the world. And we do think that more investment has to happen.

If investors are looking for earlier-stage companies and development companies, we looked around the world, and we could not find a junior copper mining index anywhere. So, we developed one, and we thought, "Okay, yes, there are some copper ETFs out there, but they really focus on a very large contingent of companies, some pure play, some not." What we wanted to do was provide an opportunity to invest down market cap in the sector, which we think is going to be receiving much more investment over the coming year.

It's a unique vehicle. As I said, we think it's one of a kind. It doesn't exist anywhere in the world. And again, we're trying to find solutions to bring to market that are unique, they're innovative, and really leverage the experience that Sprott has in the metals and mining space over multiple decades to put that intelligence into the way these indexes are created.

And as I said, we formed a partnership with Nasdaq in its indexing group. They used a lot of our knowledge to construct these indexes, and we think they're very well thought through.

James Connor, Bloor Street Capital: John, as we wrap up, where can investors go to find out more about these new ETFs?

John Ciampaglia, Sprott: The best place to start your journey and do your homework, do your education is sprottetfs.com. That's where you can find information about the ETFs. And then investors looking for information on the Sprott Physical Uranium Trust, the best place to start is sprott.com/uranium. Lots of educational material.

Most of my job is focused on educating people about these different markets. They're not well understood. They're very early stage in some cases, and unfortunately, they're still opaque. We really try to share as much information with investors as we can and give them a range of investment options so they can pick and choose what's best for their respective portfolios.

James Connor, Bloor Street Capital: John, I want to thank you for making time with us today. That was a great overview and a great update on uranium and a great overview of your new products. Congratulations on that. Once again, thank you.

John Ciampaglia, Sprott: Thank you for having me and thank you for continuing all this great educational work. I think there's a lot of interest in the marketplace, and information and education are really critical right now.

Video Transcript: Per Jander

James Connor: Per, let's discuss uranium. WMC Energy is involved in the buying and selling of uranium for your various clients. I want to get a better understanding of who these clients are. Are they financial players? Are they producers or utilities? Give us some background.

Per Jander: Sure. Our team has expanded and there are now six people on our uranium team. With that comes a lot of coverage. I would say we are talking to anyone in the uranium or in the nuclear fuel market, period, while we're avoiding discussions with Russian representatives, given the geopolitical concerns. We are talking to every utility, every producer, intermediaries, traders, banks, anyone with an interest in uranium. We are meeting and talking with them to get to know their needs, what they want and to try to help them out. It's a fun community and I really enjoy it. I’ve got some really nice colleagues on board now and we're a great team.

James Connor: These clients that you speak to, are they based in the U.S., Europe, Asia?

Per Jander: The clients that I talk to are mostly in Europe because I used to cover the European market when I worked with Cameco. It's been almost 20 years that I've been calling on them, and some of them are still there. Considering most of my family, friends and college buddies are over in Europe, I really like to travel there. But I would say the majority of my time, at least 80%, is purely dedicated to Sprott and the Sprott Physical Uranium Trust (SPUT), something I enjoy as well.

James Connor: I'm glad you brought that up because I do want to touch on that. But before we do that, I want to get a little bit more information from you on what the utilities are doing. This time last year, the focus was on the Russian invasion of Ukraine. Are utilities still concerned about possible restrictions on Russian-sourced uranium, or is it business as usual now that it has been a year?

Per Jander: I would say that in the beginning, right when the invasion happened, the market was turned upside down. I like to highlight the Swedish utility Vattenfall which went out four hours after the invasion and just said, "No, we're done. No more Russian deliveries. We're going to find it elsewhere." That was self-imposed sanctions.

There has not been a lot of other utilities that have followed suit, and that is slightly disappointing. But there was a lot of talk about sanctions early on and the market got a bit rattled. Then it calmed down, and it seemed like, "It's too far out. No one really cares about it." But just early this year, there were WNA [World Nuclear Association] working group meetings in London in which many European entities came together to discuss current topics. Then there was an NEI [Nuclear Energy Institute] Conference in Washington DC recently, where this topic came up. It is a very hot topic right now, and it has just flared up in the last few weeks.

With the anniversary of the Russian invasion of Ukraine coming up, regardless of whether there are actual sanctions put in place or not, I think enough entities are now taking it seriously that we can't ignore this anymore. I think there will more self-imposed sanctions, maybe not for everybody, but certainly for a majority of entities. It’s something they have to take seriously, and they can't really ignore it anymore.

James Connor: They can be self-imposed restrictions, but are utilities concerned about the U.S. government and if they might impose some restrictions on Russian-sourced uranium or conversion and enrichment services?

Per Jander: I think they have to take it seriously. Not every utility is exposed to Russian deliveries and had it in their portfolio. Some certainly do. The job of the utility is to make sure it gets the uranium and nuclear fuel it needs to power its station, so they have to take this issue seriously. I don't think there's going to be restrictions slapped on it [Russian-sourced uranium or conversion and enrichment services], or an immediate halt to it. I think what's being discussed more is some type of phased approach where you have a few years to let the contract expires. But for any new contracts, I think utilities are probably looking outside of Russia.

James Connor: Let's move on and discuss the spot market. As you mentioned, you are responsible for securing pounds for the Sprott Physical Uranium Trust or SPUT. In the last few weeks, we've seen SPUT trade at a premium and therefore it's been able to raise cash. You've been out in the market buying pounds. Why don't you give us a little bit of color on the spot market? I'm just curious what it's like, how tight it is right now. Is it easy to secure a million pounds of uranium or is it still rather tight?

Per Jander: That is a great question. Early on in 2021, it was very easy to source a million pounds of uranium. You could buy that in one day. That was no problem at all. Then, in about September 2021, if you had gone out to try to buy a million pounds, the market really would run away from you.

We talked about that with Sprott as well, asking "What is a good approach on this?" Because I don't think anyone's going to stress that you just go and chase offers and you drive the market up several dollars only to run out of cash. Then the market just comes crashing down again when you're gone. It's disappointing, but there's very few buyers in the spot market. SPUT has done the absolute majority of the buying. Anytime we haven't been there on the bid side, it seems like the market is very empty and soft. We haven't been active either for the last quarter, so that obviously there are offtakes¹ coming in. That means that some of the entities are selling or have replenished their inventories. I wouldn't say they're flush in uranium. The market is certainly tighter than it has been for the last year or so.

When we were not around in Q4, and normally, you would expect the market to drift down, but it actually held up, which was a positive surprise. There's clearly not a constant flow of material that has to be sold in the market that we've seen before. I think a lot inventories and uranium pounds are already spoken for.

When we did see prices dip down earlier in the fall, it was maybe to $46, $47, later $48, you saw a couple of utilities, and even producers, come in and pick up that material. There were four or five buyers that picked away at a few hundred thousand pounds of uranium at a time when the market dipped down. We have seen that in the last couple of weeks, too. But now the uranium price is not $46-$47 anymore. I think, anything under $50 is what people consider a good deal. You do have producers that are short, so they need to buy material at some point. And utilities just want to secure some pounds as they will need it at some point, and are not sure of what the market is going to do.

In my view, $50 almost feels like a bit of a floor. On the upside, who knows what is going to happen there. But as far as the downside goes, it feels very limited with pounds under $50.

James Connor: I am curious where these pounds are coming from, the pounds that are for sale. Are they coming from producers, off-take agreements? What are they exactly?

Per Jander: Mostly intermediates are where we found these pounds, but they obviously get it from somewhere, whether it is off-take or inventories they have. I can't name any specific names, but it's sellers that we'd certainly dealt with before where we find this.

The fact that we haven't been in the market for the last few months, means they have a little bit of stuff to sell. But it's not as if the phone is ringing off the hook and people are saying, "You have to buy my pounds." It's more me chasing people these days. But I think that's a healthy sign for the market, that you don't have that big spot overhang anymore.

James Connor: That's a good overview of the uranium spot market. Let's move on now and discuss the long-term contracting market. Many people have said 2022 was the beginning of a new long-term contracting cycle. UxC estimates that more than 114 million pounds of uranium was contracted in 2022, the largest since 2012. I'm going to put you on the spot now, Per. What will that number be in 2023?

Per Jander: Thanks for that. I would say it's going to be higher than 114. UxC has a very good insight into the market, but do they see everything? I don't think so because Cameco alone reported 77 million pounds sold, and I struggle to think that their market share is that big.  I think there is contracting going on as well and that the number is actually higher than 114. But not everything will be reported. Regardless of what the public number is, I actually think it's higher; 150 is probably not a bad start, might be higher.

There has been a lot of conversion and enrichment that has been procured over the last six months or so. We still have a pretty healthy inflow of both conversion and enrichment tenders from utilities. That hasn't really slowed down. But the natural follow up of this is, of course, that once you procure those products, you move to U308. Now, there is definitely tenders for enriched uranium products, EUP, where you combine all three. But nevertheless, there is enough separate products that are being procured and it will move to U308. I think we will see a record year since Fukushima for sure.

James Connor: With regard to the long-term contracting market and with utilities, have procurement strategies changed this past year, given what's happening with Russia and also the tightness of the market overall?

Per Jander: Yes, absolutely. The nuclear industry as a whole already started picking up speed because of decarbonization and electrification, but the Russian invasion of Ukraine certainly sped things up.

There is a focus on it. You've been working down inventories. When things started to tighten up a little bit, it's not going to last for that long, so you start working down inventories now and you realize that this is probably going to last a while, and Russian material is probably not going to be procured for quite a few years. Not only do you want to replenish your inventories, you probably want to beef up your strategic inventories a little bit. We are not even at replacement rates when it comes to how many pounds of uranium are procured each year, so we need to get back up to that, and you actually going to overshoot it a bit, too. That is why I think we'll see those numbers pick up quite a bit. As far as utilities go, regular utilities, absolutely, they will try to beef up their inventories and continue their contracting. But when you see a very unique or a very niche group of utilities, the ones with Russian designed pressurized water reactors, VVERs. Great design. They've been working flawlessly over the last three, four or five decades, maybe even. But those utilities, when they procure these Russian designed reactors, they also get fuel supply from the Russians. Now, the Euratom Supply Agency (ESA) in Europe is obviously saying to that we can't rely on Russia anymore, so we need to move away from Russian fuel supply and go to Western fuel suppliers.

But it's a different shape of fuel bundle. Not many of the Western fuel manufacturers can produce a hexagonal instead of square bundle. Westinghouse is one of that can. Many of these utilities – and there are a handful that are in Finland, Slovakia, Czech Republic, Bulgaria, Hungary -- need to reach out and procure these fuel elements themselves for the first time. Once they have those, then they can start looking for uranium enrichment and conversion. We've seen that happen. The Finnish utility Fortum has publicly said that it concluded a contract with Westinghouse for fuel fabrication in November. More or less the next day, they came out for a tender, so they are currently out. We're expecting the other utilities to come with this, too. This is not insignificant demand. It's also not normal that you see almost in-year demand for enriched uranium product. This is also going to put some pressure on the market.

James Connor: As you mentioned, the narrative toward nuclear power has never been better. We have a massive build out in China. They're building, I believe, 150 new reactors between now and 2035. Japan said they were also going to start up their nuclear reactors. I think they said 15-16 by some time later this year. Yet, we still have uranium hovering around the $50 price. With all these positives within the sector, why aren't we seeing uranium at a much higher price like $60 or $70 dollars a pound?

Per Jander: I think the utilities don't really procure in the spot market. They do long-term bilateral contracts with large suppliers. It's very difficult to connect the term price they're contracting at and the spot market, because normally, the connection there is that you have enough contango³ that the term price is high enough, entities such as ourselves, WMC or other intermediaries, they would just buy material in the SPUT market, finance it and sell them out in time.

But the contango is not strong enough right now. Obviously, financing is very expensive, but there also isn't that much SPUT material around either. That trade hasn't really been able to work out for the last year or so, I would say. What we need to see first is a higher term price. That's not frustrating bits, but it is.

Cameco clearly is selling their material at a higher price than what's being published. There was some frustration expressed from them, too, that it's clear that they're winning business at prices higher than what's being published by price reporters. But at the same time, there are lower offers that are not being accepted, but there are offers lowers, and those are the numbers being published.

I want to say it's a bifurcated market, but certainly Cameco can extract the premium in the market, but that's not necessarily reflected in what we're seeing as published prices. That obviously needs to be addressed, and I think it will be. There is enough demand hitting the market that the term price is going to start going to move. Then once it does that, I think the spot market will follow, too. But it's very opaque. Even if you're in the middle of it, it's quite opaque. Obviously, for an investor on the outside, I can certainly understand the confusion and why things not moving. I am quite convinced that the spot market will move and it will move quite a bit. It's just a matter of when. Things move very slowly.

But through the course of this year, like I said, I think $50 is the floor, and there's is only really one way to go from here.

James Connor: Recently, Kazatomprom said its production numbers for 2023-2024 will be reduced by 4-5 million pounds. That should also have a positive impact on the uranium price.

Per Jander: I think it will have to. I don't know their contracting situation, of course, but I have to assume that some of those pounds were probably already sold, which means that they will need to replenish them in the market. You see them in the market every now and then just like Cameco is in their buying every now and then as well. I think it's healthy. I think it's good for them. A lot of the deliveries are paid to the spot market, so it's not inconceivable that they have an interest in being in there and certainly be involved in the spot market in a way and to get a better understanding for it.

James Connor: Per, as we wrap up, are there any major events investors should be looking for in the coming months?

Per Jander: Yes, I think there is one. I think the entire nuclear industry is looking at this, and I think certainly, they look to investors as well to monitor this as much as they can. It is the restart of the ConverDyn conversion facility in Metropolis, Illinois. We need conversion to just be available in this industry because, as we touched on before, enrichment capacity in the West is tight. The underfeeding is gone. Urenco² is now publicly admitting that it is no longer underfeeding. They're moving towards overfeeding. In order to enable that, you need conversion, and that will translate into demand for U308 as well. Even if it's not a perfect restart, I think the market can certainly absorb a little bit of a delay, but we need it for a healthy market. Utilities want it to work, producers want it to work, the media wants it to work. ConverDyn is really focusing on getting the conversion facility gets up and running. I spent quite a bit of time with them lately. I have every confidence in that they will make this work. But it's going to happen in late March, early April. I think everybody is just holding their breath and hoping that it works out. But it is definitely worth keeping an eye on.

Another thing for investors to watch is Russian sanctions, both in Europe and in North America. They can certainly have a near term impact on the market.

James Connor: Per, I want to thank you for spending time with us today and sharing your views and your insights on the uranium market.

Per Jander: Thank you very much, Jimmy. Any time.