What the Nuclear Power Revival Means for the Price of Uranium

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1:12Bloomberg Audio Studios. Podcasts. Radio. News.

1:29Hello, and welcome to another episode of the Odd Lots podcast. I'm Jill Weisenthal. And I'm Tracy Alloway. Tracy, are we calling it a nuclear revival yet? No, I mean, for real. Like, is that a thing? You know what's going to happen as soon as you start calling it that, it's going to, like, peter out, fizzle. Don't say that. Don't say that. Some people would say we saw the recent Three Mile Island news. We've seen some other things of that nature. Some people would say that, at least in the U.S., there is something of a nuclear revival going on. Yes. You know what I find kind of funny is if you look at one of the price impacts of a nuclear revival, it's uranium, right?

2:09Yeah. But uranium started to go up, I think, right after the pandemic. And now it's come down a little bit from its heights, its recent heights. So it's kind of funny. Like, it's sort of acting like a meme stock. Yeah. That's literally what I was – I was going to say that for a certain portion of the public, uranium is like Bitcoin. There are certain assets out there that have these sort of cult like things where it's not just that people are bullish, but they think that like in the future, if they're smart and savvy enough to get in now, they're going to make this huge fortune. And I would put crypto in there and I would put the people who play those like stub equity of Fannie and Freddie in that category.

2:51And then there's like the uranium cult on social media who thinks like we're going to buy uranium. And one day everyone will wake up and realize that nuclear is the future of energy, that all electricity will be powered by nuclear. And those of us who are smart to get into uranium now will be the new inheritors of the earth. You know, the funniest thing I saw when this became a thing back in 2021. So there's a uranium market subreddit. Of course there is. Yeah. And someone posted on there that they're a broker for physical uranium. So if you're interested in buying physical uranium, you can buy it in like 100 ,000 pound increments.

3:28Wow. So I don't even know who the target is for this. Who is the retail trader that is buying 100 ,000 pounds of uranium and presumably storing it somewhere? One day that person will have the mandate of heaven. But the question is, when will that be? Even if there is a nuclear revival, even if all across the rich world they're like, nuclear is the way to go, what does that actually mean for the price of uranium? I'm not really clear. Yeah, me neither. Well, I'm really excited to say because we do have the perfect guest. We're going to be speaking to someone who knows everything about every commodity in the world as far as I can tell, at least related to energy commodities and maybe metal commodities.

4:07to he's someone on the sell side. You know, Tracy, there are a few people on the sell side. Not many. Many people on the sell side are worth reading. There are some people who's writing, I consider it to be a crime that they're locked up within sell side because it's so good and so interesting that it just shouldn't be the type of thing that traders click on for five seconds. And we're going to be speaking to one of them. Yes, actually this analyst, I think their research does get published in a book. Oh yeah. Every once in a while. I have some of those, some old ones. and they stand the test of time, which is something that you can't say for all cell-side research.

4:42No, you absolutely can't. So we are going to be speaking with the one and only Bob Brackett, literally the perfect guest. I've had him on the podcast before. He is the head of America's Energy Transition at Bernstein Research. Bob, what's your deal? Because like I said, you don't, you know, like when I read your report on uranium, you're going into the science of how it's mined. You're going into the science. You have a copy and paste of Einstein's letter to Roosevelt talking about how this uranium thing could be big for bombs and electricity and so forth. They don't really look like typical analyst reports.

5:16Yeah. So I think the challenge is I'm a geologist living in Manhattan. There you go. A handful of jobs. And I think I've had two of the best. I was working with Hess Corporation for many years. I've been at Bernstein now more than a dozen. And so the answer is my whole lens of this planet is a cyclical commodity investor. And how do I think about cycles? And it's always depletion based. So anything that depletes naturally, other people run away from, I tend to run towards and uranium is right in that wheelhouse. Okay. I have a really basic question. What is uranium? And also what is enriched uranium?

5:52Because when I hear that, I always think, are we adding B vitamins to it or something? And then And also, what is yellow cake and why does it look so delicious? Well, we'll start with yellow cake because that's where we start geologically. And the funny thing about uranium as a mined commodity is most of it is drilled for. And most of it looks more like an oil and gas operation. So the majority of uranium, yellow cake, U308, comes out of the ground through in-situ leaching. Drill a well, pump fluids down to a sandstone reservoir and pump up and treat the yellow cake. So yellow cake is U308. It's a uranium oxide.

6:29It looks nice and yellow. It is not terribly dangerous because it is mostly a very stable form of uranium. So uranium has isotopes, if we go back and remember our nuclear chemistry. And so most of yellow cake is U238. I send that to an enrichment facility. I spin it up. I get rid of the oxygen and replace it with fluorine for chemical reasons and then enrich it to power plant grade, and then I can keep enriching it to weapons grade. But hopefully, we don't go that far. Hopefully, the person buying 100 ,000 pounds on Reddit isn't doing that earlier. You mentioned depletion as being this core lens through which you maybe view the entire world.

7:11And I remember the one time we talked to you before was very eye-opening conversation because I think the thing I took away from it is, and I think the way we frame it, disruption does not exist within commodities the same way we think of in tech. And commodities, they basically never disappear and they never go absolute, maybe with the exception of whale blubber, which I don't think we use for lighting anymore. But by and large, this seems to be like a core gist of yours. I remember you wrote a great thing on the coexistence of, I think it was synthetic rubber and regular rubber, but this idea like they just stay, they'll be with us here forever.

7:46Yeah, we were using whale-based lubricants in the space age. There you go. And we stopped. Okay. Yes. But yeah, so the answer is if you're in the depletions-based business, imagine COVID where everybody on the planet started hoarding things because they worried that it was going away and it couldn't be replenished. And we did it again with the most recent couple hurricanes. If you're in the natural resource business, you wake up every day knowing your business is going out of business. And think how crazy behaviors were in a hoarding sort of world. And that's the business model. And so one, it creates this strong desire to go replace resource.

8:26And if incentives are bad, that's kind of crazy. But two, it's this constant treadmill. If the industry stops, the market rebalances. So what does the supply of uranium look like right now? How much is out there and how accessible is it? So, yeah, roughly there's about 200 million pounds of uranium a year. And I do want to say that we didn't really talk about what we were going to discuss. And so I'm... Oh, yeah. Sorry. So I'm coming in a little cold, but I'm perfectly happy because uranium is something that's been in my head. And it's had this, a lot of client interest in the last year. And that sort of inflected up just in the last months.

9:03Okay. So we were reading your clients. Yeah. You sensed the market. Yeah. Okay. Okay. And so it is a small market. So it's 200 million pounds. And whenever you hear million, that sounds like a lot, but then you divide by 2 ,000 pounds per ton and it's 100 ,000 kilotons. And to put that into context, I'm going down next month to Escondida, the world's largest copper mine. It moves a million tons a year of just copper. And so you could fit 10 of the entire uranium industry within a single copper mine. So it's a very small industry. It's an industry that sells to one customer. A lot of commodity, like copper goes into all parts of the economy.

9:44Uranium goes into nuclear power. But it's very small. It's very regulated. And there's been this challenge between local ESG and global ESG in the energy transition, which is to say, I'm going to go into your remote community in South America and say, for the good of mankind, we need 100 ,000 tons a year of copper so that we can electrify the economy and reduce emissions. And in the middle of your backyard, there's going to be a several thousand foot open pit mine. And that local community says, not a chance, I don't want that. That's hard enough to do with copper. Right now, think about uranium.

10:22Think about trying to pitch a local community. This will be great for jobs. It'll be great for investment. It'll be great for tourism, we're going to mine for uranium. And so as a result, the ability to rapidly bring on uranium is pretty challenging, which kind of suggests market tightness. Joe, I love that we didn't actually tell Bob that we were going to talk about uranium, but you've already given us so much interesting and knowledgeable stuff. So thank you for that. I realized sometime this morning that we actually had never told Bob what we're going to be talking about. But I also knew just from reading Bob that it wouldn't be an issue at all and that he would to have, he'd be totally comfortable, you know, keep him on his toes a little bit.

11:01Now, I realize we're working in the audio medium of podcasts, and so this is going to be a little bit of a tricky question. But to the extent that you can, can you summarize essentially, like you have a chart in your recent uranium note that I read, give us the sort of medium term history of the uranium price and why it went up and down over time. The most important thing about uranium, When we think about commodity prices in general, I'm pretty good about picking the middle of the cycle. Okay. What's the marginal cost of commodity? And I can find the bottom of a cycle very well. Miners refuse to give metals away for free.

11:36So when the EBITDA of a marginal zinc mine or nickel mine goes to zero, that mine goes to care and maintenance and stops producing and price recovers from there. It's the top of the cycle where pricing is the hardest to figure out. Yeah. but historically what happens for other commodity sectors, it's demand destruction and or substitution. So those are the two things you look for. So when copper price flies up, then aluminum becomes substitutable. And if aluminum price doesn't move, well, I'll just use aluminum wiring in this transmission with uranium. One, that power plant, the cost of uranium into the power plant is a rounding error.

12:17Once I've spent the billions and sometimes. This is really key because we talk all the time about the cost. cost of nuclear and construction, uranium itself basically never comes up. It's under a hundred bucks a pound. Okay. And if you think about running a coal-fired power plant, you are moving millions of tons of material into that plant every year. With uranium, it's thousands, right? So it's a remarkably dense, obviously, source of fuel. And so once that plant is built, there is very little evidence that that plant ever shuts in on uranium price. and then you combine that with the structure of the industry, if it's a utility and it can pass price on to the rate base, well, then it's not taking the full brunt of that price straight to the head.

12:59So we don't see substitution on fly-ups for uranium. We don't really see demand destruction. And it's also one of these markets that is very difficult to physically short or commercially short. And so those are the three boogeyman at the top of the cycle. They don't seem to be obvious. Who are the actual players in the uranium market? Because I remember, again, like going back to 2022, I think people were talking about the price going up because there was a new physical ETF that came out and was buying a lot of it. And to your point, it's a relatively small market. So presumably that kind of action could also push prices.

13:38Yeah, so two thoughts there. So there was this investment in vehicles. There was a Sprott Uranium Physical Trust that is – but I always go back to 08-09 where the price of oil shoots to$140 a barrel. And there were investigations from Congress. And was it the speculators? Was it Wall Street that caused the price to skyrocket? And there was never a perp walk. And I figure even if there was half an excuse for a perp walk, they would have found somebody to walk out of a building somewhere in our neighborhood all those years ago. And so in my head that I don't believe that the speculators can move for any sustained period of time the commodity.

14:17Sometimes they can see the trend and get into it before it takes off. I think they just saw a fairly obvious trend. And I should say the fourth thing that can kill uranium prices, and it is the one out there that if you're kind of long uranium, uranium stocks you have to be aware of, are nuclear disasters or nuclear accidents. And so if we look historically, the price corrections down on uranium always came on the back of Fukushima or they came on the back of Three Mile Island. Right. So when were the big peaks in uranium prices? What was going on in the world? I mean, even setting aside, we know what caused them to go down.

14:51But what was going on in the world at the time and which years that there was a real uranium bull run? They just kind of drift up. And so in real terms, they never get much above where we are now. So our price deck's about 100 bucks a pound. So you never see thousands or 200s a pound. And you just have a market that absorbs uranium regularly at a price that doesn't care and then recorrects on disasters where shut-ins and fear of future plants causes the market to go. And then you'll typically fall to 20, 30, 40 pounds, which is the cash cost where somebody says, I'm just going to leave it in the ground.

15:28How is it actually stored? If I'm that Redditor who's interested in buying 100 ,000 pounds of physical, or I'm Sprott, what am I actually doing with this uranium? Once it's enriched, there are extremely strict guidelines on the types of organizations and the type of regulators that watch you store it. In theory, yellow cake is stored at mine mouths and can be stored in the supply chain, but enriched uranium is extremely heavily regulated. So companies like Cameco, for example, might have regulatory authority, but not Joe Uranium Wall Street on Reddit. What causes demand to change in the short term?

16:08So I imagine if the US was like, we're going to really go nuclear crazy and we're going to, and we'll get to all that about your prospect for nuclear, but I imagine demand would go up. But in the course of a year, 2024, where we see what's out there and we see the utilities and what they need and we know there's not suddenly going to be a new nuclear plant tomorrow. What does the demand picture look like? So two ways to create uranium demand. One, and we've seen a bit of both, one is to build new power plants and the second is to turn the old ones back on. And so if you think about Three Mile Island being reactivated to support Microsoft, imagine the junior strategist that went to Microsoft's board and said, you know what?

16:50AI power demand is huge. We need a cheap, rateable, dispatchable, flat baseload of power to supply it. We should invest in nuclear power. And I imagine somebody higher above that person said, are you an idiot? Have you ever heard of Three Mile Island? And this junior strategist said, yeah, that's the one. We should turn that one back on. And the fact that it vetted through, and it's not just Microsoft. Now, every big tech company is associated with nuclear investment. And they have all gone through this process of what do they need, base electricity, of an unknowable demand growth, and where can they get it?

17:29And so whether it's funding new SMRs, small modular reactors, or reactivating the existing ones, it's been a remarkable inflection point. And then when all these headlines come and suddenly everyone wakes up that all these tech companies are going to want some nuclear play, what's happening on the producer side? Because I imagine they can't just turn a switch right away and have more. What's happening on the supply side when these headlines hit? So on the producer side, the good news is, again, it's a smallish market and it'll move relatively slowly. So the real inflection would be around small modular reactors because reactivating closed reactors, you know, we've got one up the Hudson you could reactivate in theory.

18:10Oh, I guess I meant on the mining side. So on the mining side, I think the miners need a price signal, which they have. They need regulatory approval. And then they'll start to go out and reactivate some of these mines. They'll start in the US and Canada, right? Canada already, it's certainly the Athabasca region. There's plentiful uranium resource there. And there's a range of places in the US you can find uranium along the Gulf, Texas. You can go find it out in kind of four corners out in the west. So the resource is there. You don't need huge amounts of capital. And we're starting to get a signal for a response.

18:47And then you go further remote on the cost, or further remote, I should say, not on the cost curve. Namibia's got a fantastic endowment. Russia, Kazakhstan have endowments. And that's where this supply is ultimately going to come from. From a security of supply, clearly the U.S. and the Canadian stuff is closer to home. What's the timeframe for this? Like on average, how quickly can supply ramp up? Forever in two years. So roughly we are measuring copper mine life cycles in a decade now, right? From a maiden resource to first production. So even the easy stuff is really measured in half a decade to a decade.

19:29And so yeah, uranium, if it's quick, I'd be stunned if there's a big supply response in less than five years, that seems hard to see. Five to 10, you start to get a response. And again, because the volumes are small, we could start to balance the market.

19:59Your best bottling plant employs 3 ,300 people. How do you get 3 ,300 people working at peak efficiency. Your best store has reduced waste, water, and energy usage. How do you make every store like your best store? Your best property has every guest raving. How do you make every property like your best property? The answer is Ecolab. Better performance, better outcomes, better impact. Ecolab. Now every location is your best location. For enterprise organizations, managing all your food needs is a tall order. But with EasyCater, you get a single workplace food vendor with the tools and resources to make it easy.

20:40Giving teams across your organization an easy way to order from a huge variety of restaurants, all on one platform. All while consolidating your corporate food spend so you can control costs, streamline billing and payment, and simplify reporting. EasyCater, your business tool for food. To learn more, visit easycater.com slash podcast. So the price of uranium is obviously tied to the prospects of nuclear energy, but nuclear doesn't exist in a vacuum when it comes to the energy transition. And there are other options out there like solar or wind. How do you kind of evaluate the cost for nuclear versus wind and solar?

21:23And there's two end members in reality. It always sits in between. So the primary end member that everyone talks about in the energy space is the levelized cost of energy. And Lazard, for example, has been studying this for decades and putting out great work. And the idea of levelized cost of energy is I need an electron. I need to charge my phone. I don't need to charge it all year. I just need to charge it now. And that would be levelized cost of energy. And wind and solar are remarkably good from that standpoint. Then there's the other end member, which is, hey, I need to power a remote Antarctic field station, right?

22:01Something way off the grid, and I need it baseload 24-7 for a year. And if I don't have baseload, if I have intermittency, if the sun shines and doesn't shine, then I need batteries to support the rest of the time. And so if my sun shines 1 % and I need the other 99 on batteries, I got to buy a lot of batteries. So ELCO wouldn't take that into account, right? So ELCO wouldn't, but a levelized full cycle or full system cost of energy, adding letters to the acronym, does. And then nuclear starts to shine because it is just, it's built to be baseload. We've done episodes, we've done a lot of episodes on renewables and some on batteries and the intermittency issues that arise with renewables.

22:45We've done episodes on nuclear. And, you know, there are people who think it's going to be an all. Like I was at a conference last week and a day at that conference, I was like, I'm convinced the future is all solar. And then I'll talk to someone else and they're like, the future is all nuclear. And my gut would be that the future is not going to be all of one energy source. But how would you go about thinking what will determine what that ultimate mix looks like? Imagine a fully electrified economy. What is it policy decisions? Is it technological breakthroughs? What ultimately, in your view, will determine the share that will be nuclear versus solar versus maybe some wind?

23:21So I sort of dismiss these all or none hypotheses because the world we live in, we don't have a single type of telephone. We don't have a single type of carbonated beverage. We don't have a single beer in the market, et cetera. So you kind of go down and there's no obvious reason why a modern economy needs one form of electricity. So it's going to be a big balance. And the way to solve for intermittency, there's kind of three ways to do it. One is nuclear, create energy that's baseload on all the time. The other is batteries where I can sort of offset the intermittency. And the third is sophisticated grids, right?

23:59If my grid is big enough, right? If I've got a cross European grid and it's windy in Norway, but I need my AC in Spain, the grid can solve it. And so there's this sort of competition between investing in the grid, which we're not doing enough of globally, investing in storage. But just to be clear, when you think about what share of the electrified economy will be powered on nuclear, what things will go into that determination? So we expect that if it grows, it's going to be less than 10%, right? It's not going to be a dominant form of energy simply because we would have to build so many reactors so quickly.

24:35And so generally, the way we get at our long-term view of what electricity demand from uranium is, is you can take an IEA net zero pathway or you can take the sustainable pathway. And it gets you something like GDP-ish growth from a base of 10-ish percent. And it's always going to be there. So it's always going to be part of the mix. What you're seeing is a customer base that really, really wants it and has deep pockets. And so if you've got big tech throwing research and development funds, then you can start to say, well, maybe it inflects higher and maybe small modular reactors come quicker.