Uranium: The Catalyst in the Clean Energy Movement


John Ciampaglia, CEO of Sprott Asset Management, chats with New York Times' best-selling author and founder of The Bear Traps Report Larry McDonald, laying out a compelling thesis on why uranium is a vital component for the energy needs of the world. Governments are moving fast to switch to clean energy solutions, but the world's largest economies are still heavily dependent on coal. Many investors have entered the uranium market with keen eyes turned toward its decades-long use cases in nuclear energy as an alternative to coal and natural gas. Despite supply-side difficulties with uranium mining, Ciampaglia explains how a growing uranium market can give mines the resources they need to increase mining operations and power the planet. Recorded on October 27, 2021.

Video Transcript

LARRY MCDONALD: Welcome back to The Larry McDonald Series on Real Vision. Today, we're really happy to bring one of the global leaders in the uranium space, the energy space, John Ciampaglia and the Sprott Asset Management team as the CEO. John, your career has just been very impressive around product innovations. The Sprott Physical Uranium Trust has come into the market with a very loud influence on the market. And I thought it would be appropriate here with what's happening in the global energy market and the supply-demand dynamics to bring you into the Real Vision audience. And I'm really happy to have you with us.

Thank you so much for joining us.

JOHN CIAMPAGLIA: I am happy to be here. I think it's a really interesting topic. And as you said, many interesting things are happening in the uranium market right now, along with a lot of other energy-related markets that I think are making a lot of institutional and retail investors take notice around the globe on what is happening in this space. And for a long time, the uranium market, I would say it was characterized as being very sleepy; there was not much happening. It was in a very long bear market.

As you know, being a contrarian or value investor in the marketplace for the last 10 years or so has not been a popular place to be. Most investors tend to be more momentum and growth-oriented. Trying to invest in a space that was dislocated like uranium for as many years as it has not been popular up until I would say, the last few months. Things are changing.

LARRY MCDONALD: We run a Bloomberg chat with about 650 institutional investors globally, John, and about a year ago, we made a very strong call on uranium. And we only had a couple of people in the chat that cared. Now, I've noticed we probably have more than 15 asset managers on the buy-side that are very interested. They're constantly posting things that you're up to. I think you made a very large trade in the market recently. Here's the way I look at it; if you think of the global supply-demand dynamic around uranium, nuclear power, coal, oil, and gas, natural gas — the move up in natural gas and coal has created an opportunity for uranium and nuclear power. But like you said, when you have a 10-year bear market, the buyers have been able to sit back, the power plants, and relax for a long time. You're talking about a grizzly bear 10-year bear market where lower highs, lower lows, there's no rush to buy. And I remember about a year ago, maybe 9 or 10 months ago, people talking about either you or someone coming along with this type of product that would allow the other players in the market — retail investors, family offices, and institutions — to participate through your uranium trust. Walk us through the dynamics around supply and demand and the influence you've had in the market over the last three months.

JOHN CIAMPAGLIA: I would take a step back to start and say, we've been interested in uranium for a long time. Yes, it's kind of come to life in the last few months, but this project that we've been working on goes back to 2017. At that point, the uranium market was in the depths of a bear market, went below $18. And just for perspective for your audience, the price at one point in 2007 hit just under $140 a pound for uranium, drifted down after the financial crisis to around $70. The Fukushima disaster happened, and the uranium price went from $70 all the way down to $18. You can imagine at $18, nobody's making any money pulling it out of the ground. There was a massive overhang of supply and inventory after Japan shut down all its reactors, and it took several years to work off that overhang, or excess supply and inventory. And that's been cleared. And now the market is on more stable ground. But what we've seen in the last 12 months is the market dynamics have changed enormously. You've had several non-utility buyers enter the market. And these are investors, and speculators, and financial intermediaries, investment funds who have a constructive view on the price of uranium, want to get exposure to that. They do that in one of two ways. They get exposure through mining companies, exploration, and development companies, or it could be through physical. And Uranium Participation Corp. was a company that has been in existence since 2005. And that's the vehicle that Sprott took over in July of 2021. We felt that we could bring a lot of value to that vehicle by re-energizing it, modernizing the structure, doing several enhancements that we thought would be much more shareholder-friendly and scalable for institutional investors. When we acquired UPC in July of this year, we acquired about 18 million pounds of U-308, which is better known as yellowcake uranium. Fast forward to today, we're now through 34 million pounds. So we've had a huge impact in terms of non-utility buyers coming in, supporting the trust, and adding to its stockpile. The demand is pretty steady in terms of the number of pounds every year that the 444 reactors need to operate. The amount of fuel that they need is about 180 million pounds per year. That's just like any other fuel source. They use it, they consume it. The market, in terms of primary supply, is somewhere around 130 or 140 million pounds. You say, well, how have all these power plants been able to operate if there's been this shortfall? And the way they've filled the gap is through secondary supply; there's been some thrifting, there's been some recycling of material. But that structural supply deficit is kind of being worked through right now. And I think a lot of people that are interested in uranium are betting that the market will move to a higher incentive price for all of this kind of shut-in production that's been in place for the last few years to incentivize it to come back into production and back into the market to meet the long-term needs of all these power plants. So it's a really interesting marketplace right now. I think further to that is that uranium and nuclear power will always be highly polarizing topics for many investors and individuals because of their association with Chernobyl, Fukushima, and, obviously, nuclear warheads. But the reality is that nuclear is a very safe form of energy production. It's one of the cleanest and it's one of the most reliable forms of energy production. And in a world where everyone wants to decarbonize and move to reduce greenhouse gas emissions and meet these different climate commitments, how do you do that? You can do that with renewables like solar, wind, and hydro. But we've learned recently that there are some limitations to those forms of energy production because of their intermittency, which means you can't produce any power at night, you can't produce power when the wind isn't blowing as much, and that's exactly what's happening right now in Europe. The wind isn't blowing as much, and how do you make up the shortfall? Well, you fire up natural gas plants, which everyone is trying to move away from, and the price of natural gas triples in a very short time. So I think investors realize that it's critical for nuclear to be part of the low carbon energy mix. And I think that's why it's getting a lot of investor interest.

LARRY MCDONALD: Yeah, I think the big picture is so important, John, because at the Bear Trap Support, we've been focused on the billion people in China that don't own an automobile. There are a billion people in India that don't have an air conditioner. And if you look at the IEA data, in all of the net-zero assumptions, there's a dirty little secret in there — and that is that globally, per capita, energy consumption is expected to go down over the next 20 years. To me, this is a classic Davos East Coast West Coast echo chamber. You get a bunch of academics that have really done a good job — OK, let's talk about globalism and what's happened in the last 25, 30 years — the United States has lost 7 million jobs since WTO — mainly manufacturing jobs. And they've shotgunned these jobs all around the planet Earth. A lot of them are in India, a lot of them in China, Bangladesh. We've literally taken 500 million to maybe 750 million people out of severe poverty over the last 25, 30 years. That's a good thing, OK? That's a good thing. We do have ghost towns in the Midwest. And the Rust Belt has been decimated. But they've achieved their mission — they've taken that middle-class person, and the middle class in countries like India is exploding. And the problem is when you have the middle class that explodes and grows, then there's more demand for coal, there's more demand for air conditioning, especially after a year and a half of being buckled down with COVID. And now we're seeing just a colossal ESG backfire that is putting you on a global stage. The amount of tension that I see in the nuclear space now, because people are starting to do the math. We feel there's been a massive miscalculation. Over the next 10 years, you said 180 right now according to the World Nuclear Association — this is a backward-looking number now, right? They put this out like a year and a half ago — 180 million pounds per day. That's without the electric vehicle revolution, that's without the dynamic around air conditioning in countries like India. And once again, that's without the electric vehicle dynamics in China with a billion people that don't have an automobile. So I sense that number — what are you hearing? What's the bull case? So you're at 180 million pounds per year now of demand. We could be at 220, 240 over the next decade in terms of demand for uranium.

JOHN CIAMPAGLIA: Yeah, that's close to our estimate as well. We think that there are at least somewhere between 30 to 40 million more pounds that will be needed to fuel all the reactors that are under construction right now or planned. And I agree with you in the sense that the world electricity needs are only going up, and that's because of the wealth effect that you mentioned.

We can't deny all of the luxuries we have in the Western world. And things like electricity in parts of the world are actually still a privilege. So we take for granted, I think, in the West having very reliable and cheap power. When you think of countries in some of these emerging markets, brownouts, and blackouts, and rationing, just happen every day because electricity production is not reliable in those markets, or they have shortages of coal, or natural gas, or whatever the issue may be. So I think what's interesting about nuclear is governments are finally publicly acknowledging that they can't move away from it. And I'm going to go around the globe and give you some examples just in the very recent past. So last week, the new prime minister of Japan said that the only way Japan will meet its greenhouse gas reduction targets is to get 30 reactors back online. They're right now at eight. They've only have been able to get eight back online since 2020.

LARRY MCDONALD: 30 back online. Wow.

JOHN CIAMPAGLIA: 30 back online. So that's a lot of uranium that has to be sourced to fuel those each and every year. France last week said they were going to be making a huge investment. And I would say France is the world leader in terms of nuclear. 70% of all their power comes from nuclear. The prime minister there said that they will be making significant investment in nuclear to support the commercialization technology of small modular reactors, which really addresses the issue of having to build these huge power plants for big Metropolis areas. These small modular reactors could meet the needs of smaller cities and towns. So I think that's a really interesting development. The UK government last week said that they're going to be building a new power plant and they are going to be supporting nuclear. The Biden administration has supported nuclear in its infrastructure bill. Look at the state of Illinois — they just provided a support package to the two Exelon reactors that were destined to close early. So there is a bunch happening at the government policy level that's been very pro-nuclear, even though there is a very loud minority that wants to close it all down. And I think that is very, very interesting. If you look at what's happened in Germany, Germany has been on a mission for the last number of years to close all of its nuclear plants. And it's almost there. Its electricity prices — 

LARRY MCDONALD: Six left, John?

JOHN CIAMPAGLIA: There's very few left, and they're counting down the clock till they're all gone. If you look at the cost of electricity in Germany relative to its neighbor next door in France, it is exponentially higher. If you look at the greenhouse gas emissions of Germany, an environmental leader in the world, they are excessively higher than France. Why? Because Germany is a country that's moved aggressively to renewables, which is a positive thing for meeting climate change goals. But the reality is we've now seen in a number of instances that the intermittency of renewables can create problems. And in Germany, for example, and in the UK this past year, the wind hasn't been blowing as much. And so what do you do? Well, you have to fire up natural gas plants, which kind of defeats the whole purpose of moving away from fossil fuels. So the price of natural gas triples, electricity prices go up, and it is exposing some of the challenges of moving too quickly or aggressively away from nuclear and that energy transition away from fossil fuels. So the movement is strong and it has to be done. But there are some limitations and we will see some speed bumps along the way.

LARRY MCDONALD: Yeah, that's the thing that blows me away is you have in the United States and China 1,360 coal plants. 1,360 coal plants. In the United States, we have a power grid that's 50 years old. We have a company named Tesla that's now worth $1 trillion. The entire uranium industry, all the stocks, is only worth $30 billion. So let me get this straight — you got every idiot on Wall Street upgrading Tesla, OK — raising their price targets. Has anybody done the math as to if they actually hit these targets of auto sales, what happens to the US power grid? How does the 50-year-old power grid support that kind of demand? We're supposed to go from 7 million electric vehicles this year globally to 145 million — so think of the impact on the power grid. And think of the impact on the coal demand. So I think the message here is the dirty secret if you actually just do the math within the IEA data and all the net-zero assumptions — net zero 2040, 2050 is really 2060, 2070. So they're definitely going to hit net zero, it's just going to be 20 years later. The problem is, what fills the gap, John?

JOHN CIAMPAGLIA: Right. Yeah and I think you hit a really important point, which is how much of the world is still heavily dependent on coal? Which when you think about coal as an energy source, I think of it as something we used 100-odd years ago, but it's still used very heavily right around the world. In the US, still generates 20% of all the power — as you mentioned, there are lots of coal plants. Places like China are down from 70%, but still at like 55%, 57%. And they are, obviously, fighting hard to bring that number down even more. But places like Australia that have lots of coal, are still heavily dependent on coal for their electricity production. So I think one of the interesting things is if we look at the idea, the possibility of repurposing some of these coal plants into small modular reactors — and this is something that Bill Gates is actually trying to pursue in the state of Wyoming, where there is a coal plant there that they are experimenting with this idea of repurposing that facility into a small modular reactor. And I think the local communities have had the coal plants in their area for decades in some cases, they don't want all those jobs to go away. What about repurposing it into something more modern technology that's cleaner burning? So I think that's a really interesting development. And as I said earlier, France is really supporting this idea, because they want to be a world leader in building out these small modular reactors around the world.

LARRY MCDONALD: Well, I think part of this conversation is good to have around the macro picture and the bull case. I'll state the bear case as well, but let's get into the inner workings of the Sprott Asset Management product and the fund that you've come up with to replace the uranium participation. So first of all, where is it listed, and how are we going to get it listed in the US?

What are the roadblocks there, first of all?

JOHN CIAMPAGLIA: Sure. Sure. So the vehicle, as you said, it was reorganized from the old Uranium Participation Corp. So it trades today on the Toronto Stock Exchange in both US and Canadian dollars. It also trades in the US on the OTC market. The ticker is SRUUF. So that is another way to access it. And basically, it's a closed-end fund that trades on the exchange. We refer to it as a uranium stockpiling fund, which means we raise capital in the trust, we take that cash, and we buy more physical uranium.

LARRY MCDONALD: So you sell shares in the open market.

JOHN CIAMPAGLIA: That's right.

LARRY MCDONALD: Say $50 million comes in, a big investor, what happens?

JOHN CIAMPAGLIA: Yeah, so that's a really great example because just about a week ago, we had a U.S. institution approach us and said, hey, we're very constructive on the price of uranium. We'd like to get invested in the trust. And we have a mechanism called an at the market capital raising program which allows us to very cost effectively issue new units, which is not very common in a closed-end fund. But we've got a lot of experience doing this over the last five or six years with our products. And that institution is able to come to market through our underwriter, buy a block of 50 million shares, not disturb the price, and we issue newly-minted shares to them. So it's a very efficient and cost-effective mechanism. And so we started, as I said, the trust in July with 18 million pounds of uranium. We're now over 34 million — so just gives you a sense of how much buying interest there's been. Where are we seeing the interest from? In the very early days, I would say there were a number of early-mover hedge funds and specialty investors, institutions, and family offices that had bought into the whole uranium thesis back in 2018, 2019. But in the last few months, the nature of the discussions we're having with institutions and family offices has completely changed. We're seeing generalist investors reaching out to us. We've had funds from around the globe reach out to us. I'm just finishing what they call a non-deal roadshow right now with one of our bank partners. And I think I've spoken to 25 institutions over the last three days. So it's everywhere you can imagine — calls at night to Japan, and Hong Kong, and Australia. And in the day, it's Europe and North America. So I've had a very busy week. But think it's a really great sign that generalist investors are in this kind of learning and education mode, want to understand what the market dynamics are. So I think that's really interesting is not just a bunch of contrarian deep value guys that were there really early. I would also say that the types of funds that are reaching out to us are larger. We went from kind of funds in the $1 to $10 billion range in the early days, now we're talking to some of the supermarket funds — the asset management shops that are in the hundreds of billions, if not trillions. So I think that's really interesting in terms of what's going to keep supporting the market longer term because we do believe we're still in the early stages of a new bull market. And I think one of the primary drivers is going to be broader institutional interest. And then second of all, it's going to be utilities realizing that, hey, I only got a couple of years of inventory left. I need to reload my contracts for the next 3 to 10 years to make sure I've got security of supply and security of price. So that's the next dynamic in the marketplace that we're all looking very closely at.

LARRY MCDONALD: And I would concur. In our live Bloomberg chat, our Bear Trap Support chat, we now have several billionaires in the chat that have been poking around, asking questions, setting up meetings with our team in Washington. ACG Analytics has been very much a front-runner in terms of getting out in front, and setting up the right meetings, and doing the right research around what's actually happening on the Hill — and like you said, with this piece of legislation that's potentially very groundbreaking on taxation versus the Green Revolution — how we're going to pay for it. Let me ask a question — if you're one of these CEOs, CFOs of the power plant, and you've been sitting back for a decade just picking off the uranium market, and then all of a sudden you see these guys from Sprott, you see all these institutions moving in — Anchorage — the Wall Street Journal reported Anchorage, a hedge fund, coming in making large investments in the space — very, very impressive investors have come into the uranium audience. I'm shocked that to this point, walk us through Cameco, for example, and the buyers. So you've got a Cameco is a company — you can get into that company in Canada, kind of the bellwether producer, and the relationship with the buyers, which are the power plants — it seems like we've seen the demand come in from the institutions, from the family offices, they're coming to you — but why haven't we seen a big trade print on the power plant side relative to the guys like Cameco?

JOHN CIAMPAGLIA: Sure. Well, I would say that I think every utility in the world is taking notice of what's happening right now in the uranium market. When we launched the fund in the middle of July, I think everybody was kind of on summer holidays. And we weren't getting a lot of calls. Something happened after Labor Day because that's when I took my first phone call from somebody that works at a power plant and said, I'm the guy responsible for buying uranium at the power plant. I need to speak to you. And I said, aha, they finally kind of figured we've arrived. And that's just one anecdote. But I can tell you that we've had a number of utilities contact us and basically say, hey, what's going on here? The price just went from 30 to 35 or 40. We need to understand what this new vehicle is about. Is it real? I think we caught them a little off-guard because when we filed our first prospectus for our at-the-market offering, it was for $300 million. And I think some of them interpreted that as, oh, OK, that's not a lot. And they'll just buy some uranium and they'll go away. The reality is it took us about three weeks to sell $300 million, and then we reloaded our prospectus for another billion. That billion obviously turned a lot of heads. And it was a big number, and I was a little unsure of how the market was going to react to it. Well, we've already sold about half of that in the last two months. So the demand has been very steady. The utilities are taking notice, because the term price for uranium, which is what they use to buy uranium with on long-term contracting — at the end of August, it was $35 a pound. At the end of September, it was $45 a pound. And this price is only published once a month by the different trade publications. So October, we'll see what that price is going to be. But I think if you listen to Cameco and if you listen to Gazprom, the messaging they're sending out right now to their audience is very simple — the conversations they're having with the utilities have started to change. The days of the utilities being able to come to market and just buy as much uranium as they wanted to at $30 are gone. The reality is the price is now reset higher and that the producers are not going to expand production until a much higher price is realized. If you look at Cameco — 

LARRY MCDONALD: That's important.

JOHN CIAMPAGLIA: It's really important.

LARRY MCDONALD: So you're a producer at Cameco — it looks to me like the Camecos of the world are sitting back. They're seeing people like you come in and all these investors, and they're kind of dealing from strength now for the first time in a decade, right? And so instead of rushing to market and printing a transaction, because how it's going to work is some power plant will lift them on, say, a three-year contract at a price, and then they're obligated to deliver at that price for a certain period of time. We're going to see a transaction like this at some point in the next probably two, three, four months. Is that the way you see it?

JOHN CIAMPAGLIA: Yeah, so just to give it a little bit of sense of the uranium supply chain and inventory — so you obviously don't want a power plant on a just-in-time inventory basis. You basically enter into a contract with a producer and say, you're going to deliver me x amount of pounds in year three, four, or five, all the way up to 10. So you've always got this kind of security supply, and there are different pricing mechanisms and formulas on how they set the price over time. But there is a new contracting cycle that is going to pick up in the next year or two. And that's when the utilities have to come to the producers and say, OK, I'm running low on inventory. I need to reload. And the big question is going to be, what do those prices look like? And what kind of terms are they looking at? This is going to be clearly at higher prices than they were accustomed to. And people say, well, is that a risk to the utilities? The reality is the cost of uranium as part of the overall cost to run a power plant is about 4% to 5%. It's not that much. There's a huge upfront cost to build a power plant, but once it's built, it runs almost 24/7/365. So if the cost of uranium were to double, you can't shut the power plant down. You just pay for it. And a lot of times, there's the ability to transfer price that over your end customer. But it's really not a big component of the overall operating costs of the utility. So everyone is watching to see what kind of contracts get done in the next — well, some of them are out for tender right now —  but it's just really starting.

This is going to send a signal to the marketplace around where the producers are willing to do business. There is a lot of shut-in production that will not come out of the ground, we believe, until there's a fair incentive price, and that the contract books are kind of filled before they say, OK, we'll turn production back on in that mine. It's been on care and maintenance for the last few years. And I think that's a really important point to make is that the supply response is not quick. It's not like you just turn a handle and the oil starts coming out of a pipeline. The supply response will take years. If you have a mine that's on care and maintenance and you said tomorrow, OK, I'm going to turn it back on — you think about trying to find and train sometimes 1,000 different people to work at a mine in a remote location — it could take two years to get it back to production. So these things take a very long time. And I think that's one of the issues that you face with any commodity market that's small and where the commodity is critical is that sometimes you have these supply shocks, sometimes you have these price levels that overshoot. And I think a lot of investors believe that we could have this ongoing supply crunch until that incentive price is reached. That's the thesis that a lot of institutional investors have kind of echoed back to me.

LARRY MCDONALD: In any industry, whether it be tech in 1999 — all the brainpower in the world was in tech — and then in 2007, a lot of the brainpower in the world was in finance, right? And so what happens is it's the same in the commodity space — when you go through a 10-year bear market, a lot of that really important brainpower has left the industry. You're talking about really smart people that were retired, and the industry has been under such a horrific bear market that in order to really ramp up —  and then you have supply chain issues, then you have COVID, you have all the other things that weren't around the last decade that could make it, as you said, a 2.5, 3-year — so if someone comes to market with new demand whether it be India, China, whether it be Germany, for example, might have to put off the closing of those last six plants — and if that happens, if they just delay it two, three years, that's a huge deal, because that's demand that was expected to be not there. And so if you have that type of demand shock, it's like the oil industry on steroids. That's why we had the debacle in 2007, 2008 with oil, right? We were talking about every day the Nigerian — the oil market was so tight. T Boone Pickens made $1 billion because the market was so offside relative to demand. And people just have to understand that about this uranium market.

JOHN CIAMPAGLIA: Yeah, you raise a really good point. When you have a sector that is in an eight or nine-year bear market, the level of underinvestment that happens over that protracted period is material. And I've been on a number of panels listening to different CEOs of junior mining companies, and they're talking about their deposits that they want to explore. And a lot of these were from 2007 and 2008 that were just mothballed for the last 15 years. There has been very little development. And if you look at the number of new mines that could come online in the next few years, you could count them on one hand. So when you starve an industry of capital, and especially one that's incredibly capital-intensive and one that is subject to incredible permitting scrutiny, like all things mining, and uranium mining in particular, you have this risk that the entire supply chain is more susceptible to these kinds of shocks. So I think that's one of the key parts of this thesis — that the industry has been so starved of capital for such a long time, that the lead time to get production back online is many years out.

LARRY MCDONALD: And what I've seen is one thing we do with the Bear Trap Support is we always track the ratio of, say, the commodity oil versus the companies, the producers — whether it be in oil you get the XLE, the XLPE, all different players, right? So you always want to track the commodity versus the companies. And what we noticed this year, and this is why you came along at a perfect time, is as the uranium, we were featured in Zerohedge in November around this potential move in uranium. And there was a big move into the smaller cap stocks. The smaller cap stocks got really expensive relative to the commodity. And you want to make sure as an investor you're looking at what's cheaper, the commodity versus the stocks. Because what happened is people looked at the small cap stocks as a way to just get access to the sector on leverage. But so many people did that in a very small time that it created a pretty good dislocation. How do you look at that dynamic now? I think your product looks pretty cheap relative to some of the smaller caps.

JOHN CIAMPAGLIA: Yeah. So right now, we've been buying uranium at about $47 a pound. So that gives you a sense of where the spot market is. Some of those juniors, they're obviously forecasting a bunch of very positive things happening in the future. One would be much higher uranium prices, because that's the only way they're going to get their projects developed. I think you have to look at the market two ways. How much does it cost for an existing producer to turn back on shut-in production — what's the cost structure of that? That can be maybe $60 or $65. On the flip side, what's the cost structure to actually permit and build a new mine? Well, that's not $60 or $65, that's probably $80 or $90 a pound. So the cost differential is real between an existing deposit and something that's in development. So with any small-cap stocks, as you know, these things can get ahead of themselves. They can be used and abused by investors at times looking for a kind of maximum leverage to an investment thesis. And obviously, we think there's a lot of merit in the uranium story, and that there's merit in owning both physical and the stocks. Many of our investors in gold and silver do that exact pairing, where they take physical because they want exposure to the underlying commodity, and they also want to take on the upside potential of the mining stocks, because there's more exploration upside, development upside, et cetera. So we think the pairing works. How people do that ratio is really an individual decision around how much risk they want to take versus producers, explorers, and whatnot.

LARRY MCDONALD: That's a great response. I really appreciate your depth and understanding there, because not many people get both sides of the coin — in other words, the producers versus the commodity. Let's talk about the risk for a second — it's important to cover the risks and reward. I think the risk-reward in the sector is still outstanding, because you've got a sector that's worth, at the end of the day, in terms of the companies, $30-ish billion, and you have $17 trillion in the NASDAQ 100, and $1 trillion in Tesla alone. So there's obviously a lot of people that want to be long tech stocks, growth and bonds.

And the real hard assets, I think, are still pretty cheap in the world relative to financial assets. But the risks with a product like yours — so right now, you're the fair-haired boy. Everybody wants to talk to you. Your phone's ringing off the hook. Your product's been trading at a premium in the marketplace — a pretty substantial premium from time to time relative to the price of uranium. When things get a little cold, as you saw with the uranium participation, we were looking at probably last December, it was trading at a 20% discount to the commodity. So walk us through what happens in a bull market versus when that bull market cools off, and the premium versus the discount to net asset value that you can see transpire in the market.

JOHN CIAMPAGLIA: Sure. Great question. So this is a closed-end fund. And we've got a lot of experience running these closed-end funds over time. In our experience, you basically let the market kind of fix the issue for you. And I say that in the sense that when funds trade at discounts to NAV — and what they will ultimately hit in our pocket, and there will be less enthusiasm. That day always happens for every commodity and every sector. What we really try to do is constantly market and promote the fund so that it's not getting ignored when you're hitting an air pocket.

 And in our experience, what we tend to find are value investors who look at those opportunities as an entry point who say, look, I've got a constructive view here. Fund's trading at a small discount to NAV, this is a good opportunity for me to pick up shares cheap. So we find those kinds of investors, and we take note of who they are, and call them, bring it to their attention. We also find there are short-term investors who may not have a long-term constructive view on uranium, but see the dislocation in the value of the shares and say, I'm going to buy them. I'm going to wait for the discount to tighten I'm going to just trade them away and arc that little spread. So we see those players come in. They tend to be financial intermediaries, not long-term investors. And then the third group that we think could have a positive impact in that scenario would be utilities. And this is just my theory here, I haven't been able to prove this yet —  but why wouldn't a utility say, hey, I have long-term exposure to the price of uranium, why wouldn't I use this as a hedging vehicle, perhaps — particularly at a time when it's trading cheaply relative to implied value. So that's another use case that I think the utility should consider. Because if you think about uranium, it's very hard to hedge a position. There's no active liquid futures market in uranium like there is in gold and silver. So I think one of the big challenges in the uranium market is how do traders and utilities actually hedge exposures? It's not easy. And I think that's why sometimes you see the price jump around a lot, because somebody has too much exposure or not enough. And the price can move very quickly on small amounts of volume if they're dumping material in the marketplace. So I think the next evolution of the uranium market would be a more active futures market, which we've seen in almost every other commodity.

LARRY MCDONALD: Yeah, exactly. So walk us through —  so if the Sprott Trust is trading at a premium and $10 million comes in, you go out and buy $10 million of uranium. But when it's trading at a discount, then the buying stops — how does that work mechanically?

JOHN CIAMPAGLIA: Yeah, exactly. So the ATM can only function if it's trading at a premium to the prior day's net asset value. That's a fundamental shareholder protection that's built into the trust document. So if there is a small premium to work with, our underwriters can issue you shares. So if you come to the market and buy shares or you approach the underwriter directly and say, I want to do a block, they'll fill that for you. On the flip side, if it's trading at a little bit of a discount, the ATM basically turns off until we get back into a position to issue again. Now, I've also been asked a lot, well, if it's trading at a discount the NAV, will you physically sell uranium, take the cash, and buy back the shares? And my answer has consistently been, no, I will not entertain that. We've never done that for any of our funds. I don't think it works. It doesn't have a material or lasting impact. And all you do is end up selling material in a soft market, which further exacerbates the price pressure. So it's not a strategy we've ever employed. I know people have done it in the past. I don't think it's really worked. And we won't be doing that.

LARRY MCDONALD: OK. Well, I think we've covered just about everything. The one bear case that I keep hearing globally, and you could speak to this or you can pass, but I get the demand side. I get the fact that Japan is coming back online. I get the fact that the UK is definitely ramping up. I just think this situation in Glasgow, and that's why it's a great time to be doing this, there's no question in my mind that the pressure on China to turn up, I think they have to double their nuclear power capacity relative to previous public statements. So I get the demand part. The supply, from what the bear case is — and we hear it from time to time — we'll put the bears and the bulls together in the chat. What's great is I get to watch these debates on our Bloomberg chat. And supposedly, in Kazakhstan and other parts of the world, there's a lot of uranium out there. And but the question is, how do you get it? How long do you get it? But what do you think about that supply bear case?

JOHN CIAMPAGLIA: Yeah. Well, I think if you look at the recent announcements from Gazprom, which is one of the world's largest producers and low-cost producers, they currently have 20% of their production shut in. They've already told the market they're not expanding. A couple of interesting things that they recently announced is they will be launching their own physical uranium fund at some point in the near future.

LARRY MCDONALD: You inspired them.

JOHN CIAMPAGLIA: Well, I don't know about that, but they claim that it's been in the works for four years. And I tend to believe them on that. And this is a joint venture between Gazprom and the central bank of Kazakhstan. And this is them saying, hey, we have huge national interest here in terms of uranium mining. And they want to support the marketplace. So they will be launching up to a $500 million fund, which they will be supplying material into. And they haven't made exact announcements around whether it will be a publicly-traded company or a private fund. But the point is they want this fund to attract investor interest from the Far East and the Middle East — from Kazakhstan, from, as I said, the Middle East, and Mongolia, China. So I think that's a really interesting development that there's another potential source of sequestering pounds of uranium to non-utility buyers. The other interesting thing that they spoke about is China's plan to build a warehouse facility on the border of China and Kazakhstan, which is going to hold something like 25 million pounds of uranium, almost like a strategic stockpile. And my sense is that this pile of uranium is going to be earmarked for the reactors that are in production or being built right now. So we know that China likes to stockpile and hoard commodities. I think they're seeing kind of the writing on the wall right now in the uranium market, and they're trying to get ahead of it, and secure their own supplies. I think that's also another really interesting development that's come out just in the last few weeks.

LARRY MCDONALD: Yeah, that's a huge bull case for uranium, because if you think of a country and sovereignty and risk to running a country, with oil and gas, as you can see right now, the Germans are basically begging Putin for supply. What they've done from a national security perspective is just mind-boggling. The President of the United States is calling publicly Putin really bad names. And now the Germans are sitting down with the Russians and really begging for supply. So if you think about uranium, a sovereign country anywhere in the world can back up the truck and store it for 100 years. John, it really gives you a long-term supply of independent energy, correct?

JOHN CIAMPAGLIA: Yeah. I think everybody wants to make sure they've got security of supply. And right now, the US reactors at the largest in the world. But it's only a matter of time before China surpasses the US, because the US, there is one new power plant being built in Georgia, but other than that, the best hope for the US reactor fleet is more operating license extensions. China right now is still only 5% of the energy mix in nuclear.


JOHN CIAMPAGLIA: Just 5%. And their goal is to get to 10%, but I don't think it stops there. I think it keeps going up. I think some of the issues they're having right now with coal are real in terms of the shortages and the rationing. We're hearing all kinds of stories out of China that big industrial users of electricity are being told to kind of scale back, which is further disrupting the entire supply chain at a time when it's already been disrupted because of COVID. So energy security is very important. It's very important, obviously, to keep your economy moving along.

And I think some of these little bumps we've seen around the world this year are really highlighting some of the issues around energy transition.

LARRY MCDONALD: You could say that again —  bumps. These are colossal boulders. People forget — in China, there was a drought in the spring. So their hydro capacity plunged. And unfortunately, the hydro plants were in big aluminum production facilities for the commodity. And so when your electricity in that region, because the hydro collapsed because of the drought, so your dams aren't producing the same amount of electricity, then they had to cut back on the production side of aluminum. And next thing we know, we had this huge colossal explosion in aluminum prices in the following months. And I relate a good chunk of that back to this problem with the hydro. Across the world, across the commodity space, there's been boulder after boulder, eyesore after eyesore. And so that's why I'm so glad you came on, because this whole situation of Glasgow and this Green Revolution coming out of the Biden team with this new piece of legislation, the attention is going to be off the charts, I think, the next five months on the uranium and nuclear. You're seeing big people flip — Jennifer Grantham with the Department of Energy, John Kerry, members of U2 — the musicians are even becoming uranium and nuclear energy fans. So it's been great to have you on. And thanks for all your inspiration and capturing that first-mover advantage. It's really inspiring.


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