The global geopolitics of nuclear fuel

0:02Shayle Kann: Latitude Media, covering the new frontiers of the energy transition. I'm Shayle Kann. I lead early stage investments at Energy Impact Partners. Welcome to Catalyst. So at the end of September, the long-term uranium price was$96.50 a pound. That's a record above the previous high of$95 that was set in 2007-2008 at the peak of the last uranium bubble. And I should note, as you will hear soon, those numbers are imperfect. Nonetheless, we don't really see a scramble amongst ultimate buyers. They seem to feel that as long as they lock in supply for the 2030s, uranium will be there, as our guest today states.

0:43Shayle Kann: But will the uranium be there? Well, first of all, uranium isn't just one market. It's a supply chain. There's mining, conversion, enrichment, fabrication. There are geopolitics involved. Too many of those links run through Russia, Kazakhstan, and China. We have a ban on Russian-enriched uranium that is coming in 2028. So the question isn't just whether there's enough uranium in the ground. It's whether the mines are coming online quickly enough, whether we can rebuild the fuel supply chain that has sort of withered through a decade of low prices, and whether we can do so fast enough to fuel the new reactors that we're now promising to build.

1:18Shayle Kann: Mike Alkin is the founder and CIO of Satchim Cove Partners. We walked through the uranium supply chain link by link, talked about the bottlenecks, the geopolitics, and the pricing. He's coming up next. Catalyst is brought to you by Antenna Group, the communications and marketing partner behind the most influential companies in energy, climate, and infrastructure. For three decades, Antenna has helped ambitious companies stand out, build market leadership, and become category-defining brands. From breakthrough startups to global industry leaders, their team brings the expertise, relationships, and track record to accelerate your momentum.

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3:05Mike, welcome.

3:06Shayle Kann: Thank you, Shell. Pleasure to be here. All right, let's talk uranium. Let's start by having you, I guess, walk through the value chain for uranium as it exists today from soup to nuts. Sure. So, Shiel, it's called the nuclear fuel cycle is what the industry refers to it as. So, it's upstream, which would be uranium mining, where they pull it out of the ground in a few different methods. It gets processed into something they call yellow cake, which is like a powder. and then that gets processed downstream in a few different stages that takes a couple of years to do on average they take yellow cake which is a powder form and they're that in and of itself uh you it can't enrich anything so for nuclear power it needs to be enriched it comes out of the ground it's just 0.7 percent fissile material so it's got to be enriched up to three to five percent from nuclear power if you're making a bomb it's got to go up to 90 percent which can take a very long time.

4:03But so they pass it along to what's called the conversion part of the cycle. And there they're turning that yellow cake into a gas called uranium hexafluoride. And so from there, it then gets sent on to an enrichment plant. And enrichment's in the news a lot when you hear about the Iran war, it's all about enrichment levels. And so from there, what they're trying to do is they take that gas and they spin it through centrifuges that spin at the speed of sound. And they're trying to get the enrichment levels, like I said, up to 3 % to 5%. And then from there, they then pass it downstream even further to a fabrication facility where they form it into pellets, and then those pellets are then put into tubes for layperson's terms, and then that gets into a reactor.

4:53And that whole process is 18 to 24 months, depending on availability of capacity.

4:59Shayle Kann: And is the market pretty divided up amongst those stages, or are there vertically integrated players who go all the way from mining to fabrication? Yeah, fabulous question. So the market is, and we can talk about the opaqueness of the market, but the market is really bifurcated not only along geopolitical lines and geographies. For example, 70 % of nuclear power is consumed in the West, yet 70 % of the supply of uranium comes from the East. And along the lines of conversion and enrichment, you also see that where we go to enrichment, which is where the magic happens, if you will, 41, 42 % of that is in Russia.

5:41And then you've got a little bit more in China, and then you start to break it over into the West. But those are state-owned players that the West is competing against. In the West, the enrichment capacity, for example, is owned by private companies or the state, in the case of France, through EDF, through a company called Orano. I should say not through EDF, but it's Orano, which is a state-owned company. And then you have a Dutch-English-German consortium that is owned by the state with a couple of small utilities in Germany called Urenco, and that's a big enricher in the West, but again, not public.

6:22So it's very bifurcated geopolitically, geographically, and also by ownership type. in the wet in the as you go further upstream on the uranium side um kazatom prom uh which is the state uh owned entity of kazakhstan kazakhstan produces 41 percent of all uranium in the world and then of that about half of that comes from kazatom prom the state-owned entity which is 75 owned by the sovereign wealth fund uh and then uh and then you get to uzbekistan uzbekistan could produce 8 % to 10 % of uranium. And then you start to get to Russia, which is another mid to high single digits, sometimes low double digits on uranium.

7:05China produces low double digits as you start to get into China itself, which has very little indigenous uranium. But in Namibia, they have significant production capabilities. So the Eastern influences have a significant amount of uranium production versus the West, as I said earlier, with 70 % to 30%.

7:24Shayle Kann: And then we think historically, have there been, I mean, is this a market that has seen fairly stable pricing in supply and demand? Is this a market that sees big spikes and big crashes? Like, what does the market look like historically? So most of the time, it's in a bear market, if you will. And so if you go back to the 1940s when they started producing uranium and you looked at today, there's been a lot more uranium produced than there has been consumed. But those inventories have been worked off through that lengthy period of time. And the reason I mentioned it's been more of a bear market than not is you've had a couple of incidents.

7:59In 1976, you had Three Mile Island. Then we had Chernobyl in the 80s. And then in 2011, you had Fukushima. And each time you've had a meltdown where – and we'll talk about the safety of nuclear power. With all of those, all that you've heard, you've had very little deaths per terawatt hour is the safest form of electricity generation. But psychologically, it has a lingering effect. So after each one of those, you tend to see demand start to, whatever the plans were, demand starts to pull back, supply works its way into the market, and it depresses prices. So to give your audience a sense of where pricing has come from, if you think about the 1990s and 2000s, the price of uranium was hovering$7,$8,$9 per pound.

8:44That's how it sold, per pound of uranium. And so it was sitting there for quite some time. And then in the early, starting in 2000, it started to work its way up to$8 and$9 and 10, 11 and 12. By the early 2000 aughts, it started to get into the teens and 20s. Because even though a lot of it is state-owned, you still have to deal with the Western producers who need an economic incentive to produce this stuff because the East can't produce it all. So it starts to get in, started to climb into the 20s and 30s. And then there were some new mines scheduled to come online around 2005, 6, 7. You had some hiccups there, one major hiccup to where supply looked like it was becoming delayed.

9:25And for context, the price of uranium went to$137 a pound. And so you had this massive boom up. Now, interestingly, what winds up happening in this market, because it is so opaque, there's no electronic price. It's not like gold or copper where you can see this thing trading in real time. It's really done through the cover of darkness. And the spot price is reported once per day at 2.45 p.m. Eastern time. And it's the midpoint of a bid in the ass that price reporters go around and do surveys on. The long-term contracting, which is the vast majority, up to 80 % of all uranium sold, is done under long-term contracts.

10:07That price is reported once per month. And that price that's reported is really not where the market is trading, and we could get further into that. But so you had that big boom. So over the period of 2000 through 2007, prices went from high single digits up to$137 a pound. And then it started to settle in. And the reason it went from, it probably went from 50 to 137 from 05, 06, 07, as there was a big mine coming online. The mine flooded and people got nervous. So who are the people when I say that? Those are nuclear fuel buyers. Almost all uranium that's consumed, almost all, is consumed by nuclear power plants that generate electricity.

10:51and because there's no substitute for nuclear for uranium it's not like you you're a utility and you have a coal plant and a gas plant and if if and depending on economics you could you could ramp one up and shut one down you can't if if there is no substitute for for uranium in a nuclear power plant so because of that security of supply becomes paramount and therefore those And those purchases are done under very long-term contracts. They could be 5, 10, 12 years or longer because it takes so long and it takes a couple of years to order. So that's how you tend to see it. As those contracts are, they'll ebb and flow.

11:33But because security of supply is paramount and because the cost of uranium is de minimis versus the operating cost of a reactor. For instance, the front end of the nuclear fuel cycle, which is what we talk about, mining, conversion, enrichment, fabrication, that could be 20 % to 25 % of the operating cost. Uranium of that could be 35%, 40%. So now you're talking, let's say, high singles, low double digits to cost to operate the plant is the uranium itself. Now, if I'm running a gas-fired power plant or a coal plant, those costs could be 80 % to 90%. So the feedstock itself, uranium, is a much smaller cost.

12:18There is no substitute, so security of supply becomes paramount. But what winds up happening with that, since most uranium is purchased under long-term contracts, what winds up happening is a recency bias and a complacency seeps into the market. And if you live in the nuclear fuel cycle like I do, what you often will hear is, well, the uranium ferry always delivers uranium. Now, pricing has gone from a low of$17 in November of 2016 to well over$100 today. And the psychology of the nuclear fuel buyer, despite prices up 5x on them that they're paying, is still like, ah, there's plenty of uranium out there.

12:56And it's really driven by the opaqueness of the market and the recency biases that are in the market and the fact that security of supply covers them for most of their needs. Yeah, I guess. Most of the time.

13:07Shayle Kann: There are two questions that arise for me. The first one being, given the structure of the market, if I'm a nuclear power plant operator, I have pretty good visibility into my fuel requirements. I'm going to be operating at close to 100 % capacity factor. I know what I'm going to need. And as you said, the only thing that really matters to me is security of supply. It's not necessarily pricing. Why is there a spot market at all? Why don't I just entirely contract forward all of my requirement capacity? It's a fabulous question. So if we look at the composition of the spot market, you're probably looking at 55%, 60%, 65%, depending on the year, are physical traders.

13:46And so those traders will, what they tend to do is they will get, and some of the Japanese trading houses, some of the banks will do it, and some one-off random traders will come into the market. You're starting to see actually some of the big oil and gas traders come into the market, some of the mammoth ones. You've seen Mercuria enter the market recently, which is enormous. But they will, so what they do is they will tend to, they might help have helped start finance a mine, a small development mine, and they might get some offtake. Or the Uzbeks or the Kazakhs or Olympic Dam, which is owned by BHP down in South Australia, a monster copper mine.

14:24One of the byproducts is copper. So they may take some of their, they produce seven, eight, nine, 10 million pounds a year and a market that's two, let's round up 200 million pounds and demand growing, you know, mid-single digits to contextualize Olympic Dam. And they may take that and just put it into the spot market if it doesn't have a committed home, let's say with utility. And because it's such a small portion of what they produce and it's not that big a portion of the market, they're not, you know, they can't be bothered. They might just sell it. Those traders will take it. And so that activity that occurs for the 20 % of the market 25 % of the market, that is the spot market.

15:02More than half of that are these traders, and they're trading back and forth for a dollar, I mean, a dollar a pound, 50 cents a pound, trying to get what they can get. Now, but because the spot price, and you asked such a great question about why even have it, because the spot price is the only one that's reported daily, and again, it's not electronic, right? It's a quiet market. It's over-the-counter market. it's the only one people look at and so if we then look at who else trades the uranium well some of the over time what's happened is cameco for example the largest western uranium miner uh for context they'll produce 20 ish 24 22 to 24 million pounds a year in that in that market um they're a behemoth and what they do they might sell 30 to 32 million pounds a year and so why did they do that?

15:52Because they're keeping a bid in the market. And so they'll oversell their contract book, but there's, because there's such illiquidity in the market that they're in there buying, they're, they're, they're in there buying in the market. And some other producers who might have some production problems will be in the market. So that could be 15 to 20 % of the market. And then that last 15 % or so historically are other financials that are in there just trying to poke around or utilities. Now, a utility typically doesn't buy in the spot market because it takes them a couple of years. So if they're buying in the spot market today, they really have a problem because they can't get that processed anyway.

16:34So why have a spot market? It's really just because there are some financial creatures that are in there looking to close an arbitrage once in a while. Some of them help finance mines and their reward is to get offtake and trade back and forth. But even the bigger Japanese trading houses, these are not big businesses for them because the market itself isn't that big. And so really where real price discovery occurs is in the contract market. Now, the contract market, though, can provide a lot of misdirection if one really doesn't focus on the nuances of it. So if we say 80 % of the market is a contract market, the price that gets reported each month is what's called the base escalated, the term price is what they'll call.

17:21Now, that is the way the price reporters will define that. It's the lowest offer they could find on a contract. So if we characterize that 70 % or 80 % of the, if 80 % are market's long-term contracts, 70 % of that is in not that. So a smaller portion, 25%, 30 % of that market is base escalated where a utility will go to a producer. And you tend to see it in bear market for pricing. A utility goes and says, we would like a five-year contract, make up the tenor. We'd like a five-year contract for a million pounds a year, and we're going to pay the long-term quoted price today, base escalated. So it might be 3 % a year, and it technically gets delivered in the third year onward.

18:08That's a base escalated price. And so the price reporters, of which there are two big ones, that will report that price. Now, if we take that vast majority of the pounds that are not sold that way, so that occurs, that base escalator typically occurs through a request, might occur through a request for a proposal. So Constellation or Duke might send out to the market, we need a five-year contract for one million pounds per year. And then a number of producers might put in and bid on that. And let's say, pick a number, it's$90 per pound. Well, today it's quoted at$97. But let's say Duke or Constellation contracted at$102 a pound or$103 a pound.

18:57Why? Because they didn't want to go down in, let's say, to a smaller developer that might have been offering a lower price. Geographically, they might have had limitations. If the price was struck at$102 or$103 or$105 per pound, but there was an offer on that contract at$97, somebody bid$97, that price, that's what they report. That's like you selling a million-dollar home and somebody offered you$800 and it gets reported at$800. It's not what happened. So you have a minority portion of the market that is sold under these base-escalated contracts, a small portion of it. And the price reporting on that is done in a manner that's odd at best.

19:39Where the market really occurs is bilaterally negotiated. That's off-market is the term. It's just, it's not put out to RFP. And by the way, fuel buyers, nuclear fuel buyers, they're nuclear engineers. They're not traders. These are not folks trading coal and gas that are commercial creatures. The economic incentive to a nuclear power plant buyer is not buy low, sell high. It's don't run out of fuel. That keeps your job and keep our plants running safely. So as a result, there's not an economic incentive to call bottoms. And so where the contract really occurs is, hey, we're going to call you.

20:19We're not going to put out an RFP into the market. The fuel buyers are savvy enough to know if they put an RFP in the market, They're going to get small developers who need a contract win who might come in and set the bar low. So they're constantly, and the fuel buyers did that through 21 and 22 and 23. As prices were going, the way they can do that is get that desperate little developer who probably has no chance of producing uranium, but they'll make it, give the old college try. And yet that, because they come in lower than what the bigger producers will come in at, they know the price reporters will set that price low.

20:55Now, that's in a buyer's market. Now you're in a seller's market and the opposite is happening.

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23:15Shayle Kann: So let me take a step back for a second. I mean, you mentioned that like the buyer's attitude right now, even at prices that are up 5X and over a hundred bucks a pound is like, there's enough uranium. Is there enough uranium? No. And so, just for background, I mean, I've 30 years in the hedge fund business and looking at deeply out of favor industries. And in 2016, one of the industries I started looking at managing my own money after the firm I was at, the partner was, we moved, they turned into a family office. And one of the industries that I started looking at was uranium. And I started going to nuclear power conferences and nobody was there.

24:02Wall Street was not there. The industry prices had collapsed 95%. The equities were down 95%. If you looked for a model from the sell side, from a Goldman or anyone, they hadn't had a model in years. So it was abandoned. And when you started talking to those fuel buyers at these conferences and said, hey, I'm learning about the nuclear industry, they'd say you're wasting your time. Pricing is$17,$18,$20. It's going to$10. It's going to$5. Well, I spent the next shortcut it. I spent the next two years building a model of every reactor on the planet and every mine on the planet. And the reality was at$17,$18,$19, once those contracts expired, the price of uranium to extract it out of the ground back then was you had to be well over 50 bucks a pound and so i knew the math was was was not right and so um what wound up happening over the last several years there's a number that we look at it's called replacement rate contracting and so if if the industry consumes uh 200 million pounds a year what it was 175 when i started looking at it, it's going up to 200.

25:10Are they contracting at that same rate? Because if they're not, they're drawing down inventories. Well, when you look at the amount of inventory that has been drawn down over the last decade, it's been a staggering amount. And so the recency biases of people who were trading off of prior years contracts in a market that where pricing had collapsed, they just always believed that uranium would be there. Well, here we are, fast forward, over the last decade, the replacement rate of contracting is about 55%. So for every pound a utility consumes, they're replacing about a little bit more than half of that.

25:48So therefore, you're not testing the economic viability of the uranium production complex in the world. Yet prices have still risen from the high teens to over$100 per pound. And that's without stressing the market, stressing the supply. Why? Because the supply that they believe is always there isn't economically viable. There is a difference. Now, to put something in context, Shale, Kazatopram, the state-owned entity, is the largest in the world. Kazakhstan itself produces 41%. And through a series of JVs with Russia, China, the Canadians, the French, They produce half of it with those JVs and half for themselves.

26:34They came public 2018, 2019, and they put out a very thorough 700-plus page prospectus. They are by far the lowest cost producer in the world. And in that prospectus, they looked out going out through 2040. And their all-in sustaining cost of production was in the mid-teens then. And they said, by the time we get to the mid-20s, you look at 2025, it was going to be around$13,$14 a pound. And they were using a Tenge of 340 Tenge to the dollar. Now, they cost in Tenge and sell in dollars. So a weakening Tenge helps their profitability. Well, fast forward to 2025, and here we are in early 26, the cost to produce that same pound is not$13,$14, it's$40.

27:22and on a on a constant currency basis because the 10-gay had weakened so much it's 55 dollars so their costs have gone absolutely parabolic and the price of uranium's risen but not nearly as much as the as as what to offset the rise so you've seen production curtailments over the years you've seen curtailments come why because the kazakhs realized we don't need to produce like the old Soviet style. You're losing money, produce more. Well, what they do is they've cut back production quite a bit, as you've seen production cuts across the entire complex. So you ask the question, is there enough uranium?

28:01There is not enough economically viable uranium. That horse has left the barn. The utilities waited too long to incentivize new production. So over the past, since 2011, when Fukushima happened and all this excess supply hit the market because demand had weakened. Well, that was 15 years ago. And so inventories have been sucked down. The recency bias is that what's always there, the uranium ferry will deliver uranium. Well, as they've gone in and tested the economic viability of production capacity at only half the clip of replacing what they're using, prices have gone up 5x. And so they're hoping beyond hope that new mines will come online.

28:44And there are new mines coming online. That still doesn't cover them. Is your view then that the bottleneck, the reason there isn't enough uranium,

28:52Shayle Kann: it's upstream, it's mining. It's not that there is insufficient conversion or enrichment capacity. So one of the things you'll hear, it's a really good question. One of the narratives you'll hear is, well, conversion is a bottleneck and enrichment is a bottleneck. And there's enough price is the great elixir, right? So right now, if you think about this whole fuel cycle, there's one product and that's uranium. Everything is a service. Converting it is a service. Enriching it is a service. Fabricating it is a service. Now, so when we look at the price of conversion has gone from$4 per kilogram to$60 per kilogram.

29:38That has incentivized new capacity to come online. There is still more capacity that's needed, but that's the flick of the switch. That is signing long-term contracts. Cameco and others could bring enrichment to Metropolis, which is a Honeywell spin-out owned by Solstice at Metropolis, Illinois. They could bring it on. Price will do that. And in a few years, you'll have the equipment and you can build that productive capacity. Same thing with enrichment. Enrichment went from$35 per separative work unit up to$200. Well, that incentivized capacity is coming online. Urenco or Rano, they're bringing capacity online.

30:16It's coming in 2030, 2031. A uranium mine from discovery to production can take 20 to 25 years. And if you look at where these things are built, the big scale ones, not the ones, you know, this is the world of junior. A lot of it is junior mining. These are small, tiny companies that are running around saying, look at me, we have the lowest cost in the world. No, you don't. You know, what you'll see right now, if you read many of the decks that are out there from a lot of these, they'll say we have$40 costs. Well, the world's lowest cost uranium miner now has$40 costs. You don't have$40 costs.

30:52So as you're thinking about an uranium mine, the bottleneck is going to be, there are inventories around the world, but as prices rise, inventories become dearer. They don't become more mobile. And so there's one other element that makes the ability in the fuel cycle to add up to 20 % more uranium than is actually needed. It could be a little bit more. It will create demand, and that's in the enrichment process. There's something called underfeeding, which is, without getting into the nuances and bore people to death, the way that centrifuges spin, if there's too much productive capacity, if you think about an apple press, if I had an apple press and I didn't have, and I wanted to make a gallon of apple juice, think about a centrifuge that way.

31:50So I would throw a bushel of apples in and I would do what I'm doing and I'd get a gallon. If I had no other order coming behind me, I could keep that press spinning and I could probably get a gallon. And if I kept squeezing those apples, I'd get a gallon and a quart, a gallon and a pint. But I would have more. Well, when there's not enough enrichment demand, those centrifuges are spinning. They can't be shut down once they get turned on. So there's very little cost to produce. Electricity is about 5 % of the cost of production. So when they have excess capacity, like they did during a downturn after Fukushima, they take the uranium that's spinning, they make enough for the order for the utility, and then whatever they can extract for themselves, they keep and they sell into the market.

32:46And that's called underfeeding. and that's a nuance of the enrichment portion of it. Now, conversely, if you didn't have enough enrichment capacity and there was a demand on that capacity, well, what you could do is add more apples to that apple press if you needed an hour and a quarter, but you couldn't run it for the full amount of time. You needed to run it less time because there was so much demand and you had to keep churning. You would put in more uranium. Well, where you are in the cycle right now is you've gone from uranium underfeeding. And at one point in time, Shale, the amount of enrichment that was being underfed, the underfeeding of uranium, the amount of uranium being produced in a down market, in a bear market, was the equivalent of the world's largest uranium mine.

33:36There was an extra 20 million pounds of uranium being produced at the uranium enrichment plants that was being sold into the market. It was almost pure margin for the enrichers. Well, here we are. Fast forward to where there's not enough enrichment capacity right now. You're getting to the point where it's close to them needing to overfeed those centrifuges. You're not there yet, but you can pencil it out and see it that they're going to need to rush out and buy more uranium on limited capacity. So what does that do? That puts an extra buyer of uranium into the market. Now, they can add up to 15%, 20 % extract more uranium, but that's going to put even more of a demand on the uranium itself.

34:24Shayle Kann: Let me ask you, though, about, I guess as a final question, about the geopolitics a little bit, which you alluded to, but we haven't really talked to you directly. I mean, I know there's a ban coming on Russian imports of enriched uranium into the U.S. How important is that? That's important. I mean, what it does is right now the Russians are having, so they send in enriched uranium, we send them back U-308 feed. That's not, we've sent hardly any back recently, only a little bit. The Russians, people tend to think, for example, oh, the war might end with Ukraine. The Russians are going to send a lot of uranium in.

34:57The Russians don't have enough uranium because they have two needs for it. One is they have their own reactor fleet in Russia, and then they have an export where they build reactors across the built-in road, and they build them, and they help finance them, they help operate them, and they supply the uranium to them. There's not enough uranium for them, so they need uranium. Now, they sell enriched uranium to the United States. Okay, so if the Russian ban went away, psychologically people would say, oh, okay, well, the Russians are going to flood the market. They're not going to flood the market with uranium because they don't have enough uranium.

35:41So there would be enriched uranium, and with that said, well, enriched prices have already gone up, contracts are being signed, and that will do what it's going to do. So, I mean, you know, Congress passed it. It's signed. The ban is for 28, and that is what it is. And so we're focused on the U-308 portion of it, understanding does Russia have enough uranium itself for the enrichment? Well, they're scrambling to get uranium for it. Now, they also can underfeed their centrifuges, which they do. But it's a challenge for them. All right, Mike. This was super informative.

36:23Shayle Kann: Thank you so much. You're welcome. Mike Elkin is the founder and CIO of Satchim Cove Partners. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. This episode was produced by Max Savage-Levinson, mixing and theme song by Sean Marquand, and Bailey edits the video version of the show. Stephen Lacey is our executive editor. All of our episodes are on YouTube. You can subscribe to latitudemedia.com for episodes of this show and Open Circuit. You can find the audio version of the show anywhere you get your podcasts. I'm Shale Khan, and this is Catalyst.