July 30, 2023 | (7 mins 41 secs)
Sprott Asset Management CEO John Ciampaglia and James Connor of Bloor Street Capital discuss the positive environment for uranium, as a global shift in sentiment is putting nuclear power in a more positive light.
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John Ciampaglia: Even though the price of uranium has doubled in the last two years, people think it could double again.
James Connor: John, the Sprott Physical Uranium Trust has been a very successful product. When you took it over two years ago, it had a net asset value of $600 million, just over 18 million pounds of uranium. Here we are two years later, and the net asset value is $3.5 billion, and it's holding over 60 million pounds of uranium. What has the flow been like in the past few months
John Ciampaglia: It’s hard to believe that we're coming up to the two-year anniversary of the Trust. It's been an incredible journey and had strong success and response from the marketplace. As you said, we've gone from $600 million to $3.5 billion. It's been a big win. We were buying uranium in the first quarter. That's slowed down a little bit as the Fed has become increasingly hawkish and signaling to the market that it is not done with its tightening cycle. We hope it's going to be ending soon, but it's put a damper on many different asset classes as investors are sitting on the sidelines waiting for the Fed to finish. They’ve been predominantly sitting in the comfort of fixed income and money markets sitting.
James Connor: We've seen much strength in the uranium market with the long-term contracting price of the spot price. The spot price is up, 15% on the year, and the spot is up around 10% on the year. But we need to see follow-through with the equities. Except for Cameco, up 30% on the year. But a lot of the developers and explorer companies are down on the year. How do you explain that?
John Ciampaglia: I think it's a function of the risk-off environment that we're in right now. These companies need to raise a lot of capital over the coming years, either through debt and/or equity. Right now, it's a challenging market environment to be raising equity at these depressed prices, as well as the cost of debt has gone up substantially in the last 12 months. All of that weighs on some of these companies that are still trying to develop assets for tomorrow.
John Ciampaglia: Cameco has been the real big winner this year, as their contract book has grown substantially as they're winning new businesses, utilities and restock inventories. It’s a matter of time before some of the smaller uranium companies start to perform a little better. The end of the Fed tightening cycle is going to be a key mark for us in terms of looking for that change in sentiment.
James Connor: You and your team spent a lot of time on the road marketing in North America, South America and Europe. What sort of interest are you getting from investors about the uranium products?
John Ciampaglia: People are very intrigued because they look at the supply-demand fundamentals and the supply chain, and they see a lot of upside in the commodity prices. Even though the price of uranium has doubled in the last two years, people think it could double again. That's not our call. But people do see the supply, demand and balance.
John Ciampaglia: If you look at utilities going out to the next few years, they have significant amounts of uncovered needs for uranium that they need to go and buy in the marketplace. We're not sure where all that uranium will come from because we haven’t developed a new mine in many years. It's been restarting mines that have been on care and maintenance. Those are the easy pounds to get out of the ground. The hard pounds are going to be building the next new mine. That's the big challenge for the sector.
James Connor: You speak to many players within the whole uranium space. What are you hearing? What are the utilities up to both in the long-term and the spawn market?
John Ciampaglia: I think utilities are finally acknowledging that the signs all point to much better prospects for their own businesses. Nuclear is being talked about in a very favorable light for the first time in a long time in many markets. A couple of days ago, Sweden said it's going to commit to 100% clean energy. Not renewable energy. They use the word clean energy, which includes nuclear. Sweden is a small country, but I think it's symbolic that governments are casting a different light on nuclear energy. They're including it in their low greenhouse gas bucket now. That was not the case two years ago. All of that is very supportive. As a utility, you're thinking your business will be around a lot longer than maybe you thought it was two years ago, as plants were closing. In Germany and Spain, there were government initiatives to decommission plants. But that is shifting. As these plants get life extensions, we see the immediate impact in the marketplace, where they need to come to market and buy large quantities of uranium to continue their operations. That has an impact in the market.
James Connor: In 2022, there were 125 million pounds contracted. Where do we stand now in 2023?
John Ciampaglia: Based on the last industry report, I saw 107 million pounds. We’re in a pretty good position to blow past last year's number, which was a 10-year high. But the number we're focused on is trying to hit 150 million pounds or more. Why? That’s what we believe is the annual replacement rate for the world's existing nuclear power plants. What will drive the price going forward is contracting at or above the annual replacement rate. The industry has been contracting way below the annual replacement rate for many years. We are starting a new contracting cycle that will last several years.
James Connor: Given what's happening with the long-term contract and spot price, there's a lot of interest coming from utilities. But what about investors? What are they doing with the spot price the equities? What are you seeing in your product?
John Ciampaglia: A lot of utilities are just sitting on the sidelines. In the last two years, they built up pretty sizable positions in these equities and the physical commodity funds. Considering how much capital has come into the sector in the previous two years, it's pretty material. Many investors are sitting and holding what they own. They're not necessarily selling what they have, but they're not necessarily aggressively buying either. That has stalled out a little bit of the excitement in the sector, but they remain very bullish and have very positive long-term price expectations for the sector.
James Connor: You and your team are always very good at developing new products for investors to participate in new market themes. What are you working on?
John Ciampaglia: We’re continuing to focus on the energy transition theme. We think it is just in the early stages but it’s obviously much further ahead in places like Europe. I believe the rest of the world is catching up. EV adoption hit a tipping point last year, and we believe this will accelerate over the next several years, particularly in North America. We will look for those emerging technologies and themes and try to capitalize on them for our investors when we spot them.
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