Lead-Lag Live
Welcome to the Lead-Lag Live podcast, where we bring you live unscripted conversations with thought leaders in the world of finance, economics, and investing. Hosted through X Spaces by Michael A. Gayed, CFA, Publisher of The Lead-Lag Report (@leadlagreport), each episode dives deep into the minds of industry experts to discuss current market trends, investment strategies, and the global economic landscape.
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Lead-Lag Live
Justin Huhn on Nuclear Energy Advocacy, US Reactor Revival, and Uranium Market Dynamics
Discover the transformative potential of nuclear energy in the United States as we welcome Justin Huhn, a technical momentum trader turned passionate nuclear advocate, to our show. Prepare to have your misconceptions about nuclear power shattered as Justin unveils why it stands as the safest and most efficient form of electricity. From the Trump administration's Nuclear Fuels Working Group to Biden's robust backing, this episode promises insight into how nuclear energy has garnered bipartisan support and what it means for the future of energy policy.
In an era marked by rising electricity demands, thanks to tech giants and AI development, we explore the practicalities and possibilities of restarting reactors like Palisades and Duane Arnold. With plans for new builds such as Westinghouse's AP1000 reactors, the conversation touches on the significant implications for uranium demand. Beyond nuclear, we also consider the expanding role of solar energy paired with battery storage and the importance of gas as a reliable bridge in our energy mix. Justin's expertise helps us navigate the evolving landscape of U.S. nuclear energy, all while emphasizing the continuous support from the Department of Energy under varying administrations.
Get ready for a deep dive into the financial dynamics of nuclear energy investments, where Justin shares strategic advice on evaluating companies within this niche market. We discuss the global uranium market, China’s ambitious nuclear goals, and the ripple effects of international uranium projects. Whether you're an investor or simply curious about the future of energy, Justin's insights about inventory trends, management performance, and market tightness offer valuable guidance. Don't miss this engaging and informative episode that uncovers the promising future of nuclear energy and uranium investments.
The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.
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No, we don't think there's going to be a big difference in Trump versus Harris. Obviously the Biden admin has been. The DOE under the Biden admin has been enormously supportive of nuclear and that was sort of on the heels of the Trump admin. The Trump admin famously had the Section 232 petition that was put forth by a couple of companies in the United States that were requesting that 25 percent of the uranium the utilities in the United States purchase would be mandated to be purchased from US miners. Trump said, yeah, we're not going to do that but we are going to look into this situation. So he brought it to light in terms of the reliance on foreign sources of nuclear fuel, largely from Russia and Central Asian countries. He created a nuclear fuels working group that dug into this issue Nuclear Fuels Working Group that dug into this issue and that sort of snowballed and he ended up kind of leading into Biden-Admin's DOE, which has been incredibly, incredibly supportive of nuclear, Appreciate those that continue to support Lead Lag Live.
Speaker 2:These shows that I do sometimes daily with various guests. I had Justin Hewn on Spaces, I think, a year plus ago, and now, first time, we're doing this visually face-to-face. If any of you want to ask questions during this roughly hour-long conversation, it doesn't matter what platform you're on LinkedIn, YouTube, X I can see your comments. Let's make this as interactive as possible. I know on X there's a huge audience that loves uranium, that loves nuclear and that loves Justin Hewton. With all that said, my name is Michael Guyette, publisher of the lead Laguerre Porridge. Mr Justin Hewton, the uranium insider himself. Justin, for those who are not familiar with your background, introduce yourself. Who are you, what's your background, what have you done throughout your career and like, how young were you when you started falling in love with the yellow?
Speaker 1:pellet. Oh gosh. It's coming up on 10 years actually since I first sort of dove into this whole world. Prior to that, I had been like a technical momentum trader in kind of a previous life and this thesis. I found out about this thesis actually through a podcast interview in December of 2016, which coincided, coincidentally, with the actual bottom for spot uranium. It was just under $18 a pound, so that was, I suppose, some dumb luck in some ways, even though the equities traded sideways to down for another three to half four years, despite the fact that the commodity had bottomed in 2016. So that was a very long pain trade. It was it's, it's always been a very intriguing world.
Speaker 1:When I first discovered this, this thesis, started digging into it, I realized how little I knew about nuclear energy. So what I knew about nuclear energy at the time was essentially that it was. It was big and dangerous and scary, and I I still had a relatively clear memory of of when the Fukushima Daiichi accident happened in March 2011. And I remember very clearly hanging out with some friends during the during that accident and discussing it and and not realizing like wow, there are 400 something of these things around the world and this thing just melted down. It's. You know we're steps away from nuclear armageddon and just having a lot of fear around that, all the headlines of the fear. I remember there being graphics being shared around social media during fukushima, of ofushima, of the radiation potentially traveling across the ocean coming to where I was out in California and everybody was all scared. And then, finally, when I discovered this investing thesis and recognized that I just knew absolutely nothing about nuclear and the more I learned, the more I realized how wrong I was, how absolutely wrong I was and how wrong most people are in their assumptions about nuclear. It's the safest form of energy, of electrification, that's ever been conceived. Period the end. It uses a tiny amount of land compared to most other electricity sources. So since that period of time, since 2016, I've fully come around on a 180.
Speaker 1:I'm an unabashed nuclear advocate, regardless of how this investment pans out. How it's panned out so far. How it'll pan out in the next few years is sort of irrelevant relative to my advocacy for nuclear, of prosperity for humanity in general, for us to collectively move consistently towards more dense forms of energy in terms of energy returned on energy invested. That's been the history of energy. We've gone from burning sticks and burning wood to burning coal, from burning coal to burning oil, from burning oil to burning gas to nuclear. Now this is the first time in history since we've been moving in that direction, towards more dense forms of energy where in many ways we're going in reverse and going back from, let's say, a 10 to 20 energy EROI to perhaps a one or two EROI with solar and wind, depending on where it's located, depending on if it's buffered with storage, et. Etc.
Speaker 1:So nuclear is the only energy form that we have that continues to move in that direction towards more density, and the more energy you can receive from energy invested, the more it can lead to increased GDP prosperity for humanity. So, all of that aside, the setup here in the investment stages is truly remarkable. If you were to make a list of everything you would have wanted to have panned out, let's say, five years ago, to de-risk this long thesis for the growth of nuclear and therefore the growth of demand for uranium. So many of those elements have panned out. It's truly incredible. We can get into the weeds on that if you'd like.
Speaker 2:Yeah, we'll definitely get into that. I want to go actually right to a question from William watching on YouTube before we get into that. I was asking if you have any comments on small modular reactors that are currently in effect or other nuclear plants currently under construction. There's been a lot of talk about small modular reactors as being this kind of game changer in general. Maybe just for those listening who are not familiar, explain what that is and why it matters.
Speaker 1:Sure.
Speaker 1:Well, small modular reactors are are basically exactly what it sounds like in the name right there. So the the typical large reactors anywhere between you know the high hundreds megawatts to, uh, you know, 1.4, 1.6 gigawatts and and on average, around a thousand megawatts or one gigawatt for a large light water, boiling water, heavy water reactor. So, like the Westinghouse AP1000 is a one gigawatt reactor. Those were the two that were built most recently in Georgia and the United States at the Vogel site, which, by the way, news out this morning that so far in the operations of Vogel 4, that's operating at 100% capacity factor Just phenomenal. Nuclear famously operates at extremely high capacity factors in the United States, in the 90th percentiles, so that's pretty incredible.
Speaker 1:Small modular reactors are generally smaller, so they're anywhere from micro reactors from like one to five megawatts up to 50 megawatts and then the generally larger small modular reactors are more around that 300 megawatts. So we, the generally larger small modular reactors, are more around that 300 megawatts. So we have multiple designs in that range. The GE Hitachi BWRX300 is a boiling water small reactor at 300 megawatts. Terrapower is building the Natrium reactor. They've already broken ground in Wyoming. This is replacing a coal plant, that is, I think it's 340 megawatts. So they're about a third to a quarter roughly around that size.
Speaker 1:And the whole idea around small modular reactors is that they can be essentially factory built and assembled on site and largely that's how large reactors are built anyway. So it's not really all that unique. But the small aspect gives them far more use cases than a large reactor. So there's a lot of places in the world where a thousand megawatts is just too big for the existing grid in that location. But you might be able to plug in a 50 or a hundred or a 300 megawatt reactor and and perfectly power the existing grid in any given location. So there's and there's there's so many different use cases.
Speaker 1:Um Dow has made an agreement with X Energy and their XC100.
Speaker 1:This is a high-temperature gas reactor that produces an enormous amount of heat, so industrial heat is another use case for certain advanced designs.
Speaker 1:The big case for small modular reactors, especially in the West, is, although on an economy of scale the cost per megawatt, let's say, to construct these is probably going to be more than building large reactors, Overall project cost is likely to be smaller and considering higher interest rates and the financing risk with these large projects, that could make small reactors more attractive. There's currently dozens and dozens around the world of small modular reactor projects that are in various stages of development. At the Darlington location in Ontario there's four BWRX-300s from GE Hitachi currently under construction, and I could go on and on about this, but this is just this other element that's potentially going to fit a unique niche for electricity demand and nuclear that could be remote locations. The US Army just broke ground on building their first small advanced reactor that they potentially can utilize around the world in various military bases. If they only need a couple of megawatts, for example, of electricity, that has potentially enormous implications.
Speaker 2:I'm sharing a post that you reposted from ZeroEdge, with the Energy Secretary talking about SMR as it relates to AI, and it seems like this is the ultimate catalyst. Now, right, is this huge AI push in terms of needing to power these data centers, and nuclear really being the only way to do that? Let's talk about what's going on in terms of the marriage of tech with nuclear.
Speaker 1:This really came out of left field, michael. It's moving very, very quickly and I can give you a couple of examples of how quickly this is moving. One of them would be the Three Mile Island. I believe it was Unit 1. One of the two units melted down in the late 70s and that meltdown was fully contained in the containment of the reactor as per its design. Nobody was injured or hurt in this event, but it was at the kind of the height of the Cold War. We had a lot of fear around nuclear and a lot of, you know, kind of grassroots anti-nuclear sentiment and big movements in the US and elsewhere that were pushing against nuclear. And this was sort of like the straw that broke the camel's back to kind of solidify the anti-nuclear movement. And for you know, we continue to build reactors into the 80s. But it really kind of petered out after that, especially after Chernobyl right, which happened in the 80s following Three Mile Island. So that was this. Three Mile Island is still sort of fresh in the memory of kind of the boomer generation in terms of nuclear being scary and reasons for not supporting nuclear, even though, like I said, the meltdown was fully contained and didn't actually cause any fallout or damage.
Speaker 1:Other units in Three Mile Island continued to operate until 2019. Constellation is the largest nuclear operator in the United States. They own and operate through my island. They shut it down in 2019. Why? They could not get a sufficient power purchase agreement or justify the investment at the time, which I believe was in the few hundred million dollars that they would have needed to refurbish, maintain the reactor, to get a life extension on that reactor. So the electricity market was insufficient in 2019 to support the continued operation of that unit. Well, just on Friday, constellation announced that they are going to be restarting Three Mile Island and that is part of a deal that they made with Microsoft that is giving them a 20-year power purchase agreement, rumored to be above $100 a megawatt hour. We are starting to hear leaks that it's even higher $110 above $100 a megawatt hour. We are starting to hear leaks that it's even higher $110, $120 per megawatt hour. This is triple quadruple existing electricity prices currently, right now. So tech is kind of carrying the day here. They need electricity, they have the cash. The data center build-out outs largely being driven by AI. The demands the electricity demands of AI, are enormous and they're happening very, very quickly and they need the electricity and they're going to pay whatever they need to pay to make it happen. So this was a huge headline that came out last week. It obviously sent the utility stocks on a tear Constellation was up over 20% that day. But also the uranium space is sort of like this second order play on this electricity demand tech support of nuclear Uranium is the only fuel that can be used to power these reactors, so we're expecting more and more news on this front.
Speaker 1:There's only so many reactors that can be restarted in the US. There's two more, perhaps Palisades. That's already underway for restart later next year. There's a smaller reactor in Iowa, duane Arnold, that's likely potentially to be restarted. Besides that, this has huge implications in the US for life extensions for the existing fleet across the board. There's more than a dozen reactor applications in the NRC right now to extend these reactors that are currently operating and set to shut down in the next 10, 15 years. We expect pretty much all of them are going to get extended, which has major implications for demand on uranium.
Speaker 1:But going forward, we actually think and we're seeing all of the signs for this. We think we're going to see new builds announced in the United States and we think there's probably mostly going to be AP-1000s. These are Westinghouse design, the most recent reactor that was built in the United States, and even though there's plenty of utilities in the US and outside the US that are interested in building SMRs, tech companies need more energy so we're probably going to be looking at potentially multiples, maybe even more than a dozen. There's multiple sites in the United States that are already permitted for new reactors at existing reactor sites. So that could potentially be fast-tracked, especially with a design that's already approved by the NRC, which would be Westinghouse's AP1000. So it's a massive, massive trend. We think it's only going to accelerate.
Speaker 1:I actually believe that electricity availability is probably going to be a limiting factor in terms of the pace of the growth of AI. We could see still an expansion of solar with battery storage. That has interesting limitations for tech. For certain reasons. These data centers operate extremely, extremely hot and need an enormous amount of cooling power, one of the reasons why they consume so much electricity. The only places you can get decent capacity factors, you know, in the 20th percent off of solar, usually in the desert southwest where it's very, very hot might not make sense to build data centers there Nuclear and geothermal, I think are going to be the big long-term winners for tech, ai, data center buildouts and electricity demand. In the meantime, we'll probably also see an expansion of gas, just to get over the line in terms of electricity.
Speaker 2:You mentioned the life extensions. I assume that's independent of whether it's going to be Trump or Harris, but is there a sense of one administration maybe being a bit more friendly towards those extensions than the?
Speaker 1:other. No, we don't think there's going to be a big difference in Trump versus Harris. Obviously the Biden admin has been. The DOE under the Biden admin has been enormously supportive of nuclear and that was sort of on the heels of the Trump admin. The Trump admin famously had the Section 232 petition that was put forth by a couple of companies in the United States that were requesting the 25 percent of the uranium the utilities in the United States purchase would be mandated to be purchased from US miners. Trump said, yeah, we're not going to do that but we are going to look into this situation. So he brought it to light in terms of the reliance on foreign sources of nuclear fuel, largely from Russia and Central Asian countries. He created a nuclear fuels working group that dug into this issue and that sort of snowballed and he ended up kind of leading into Biden-Admin's DOE, which has been incredibly, incredibly supportive of nuclear and largely these DOE folks are lifers. They've been there for a long time in both Republican and Democrat administrations.
Speaker 1:The US has been Democrat-controlled for what? 12 of the last 16 years. But either way, trump is pro-nuclear, elon is pro-nuclear. If he ends up being part of his admin we don't expect there to be significant differences in terms of going forward support for nuclear in the United States based on Democrat or Republican controlled House, senate and presidency. The markets that might be a different story. House, senate and presidency the markets that might be a different story. That really depends under the event. In the event of a Harris win and the control of either the House or Senate for the Democrats probably doesn't doesn't bode well for markets, considering her plans for doubling the capital gains tax and potentially implementing unrealized capital gains tax for high net worth individuals. But that would have to pass legislation. So who controls the House and Senate is probably even more important than who controls the presidency in terms of market expectations. But I think that the markets would probably appreciate a Trump admin more.
Speaker 1:All that said, the tech companies in the US are going to be driving largely this nuclear support initiatives that the DOE is completely on board with. In fact, michael, next week we're expecting an updated liftoff report from the Department of Energy. They issued the first one of these last year. This liftoff report looked at coal power plant current and former coal power plant science that are ripe for replacing with nuclear. Largely that would be smaller modular reactors. So this DOE report we think is going to be just like I tweeted on absolutely going to be breathing fire considering the developments over the last few weeks. Looking forward to reading that very much.
Speaker 2:How important are the banks to this? Because if it's going to be driven by tech and tech's got the cash, it doesn't seem like you need much capital from the banks.
Speaker 1:Well, it depends on who's going to actually be doing the building. So whether or not the tech companies are going to entirely circumvent nuclear utilities and work directly with developing their own plants, probably unlikely. Not really sure if the tech companies are actually going to want the power plants on their balance sheets. So most likely utilities will be involved and there could be financiers involved as well outside the tech companies. Not exactly sure how it's going to play out, but the finance risk has been one of the big elements, especially in the West. It's less of an issue in China where they're building reactors for 5, 6 billion and getting them done from breaking ground to producing first criticality in five to six years.
Speaker 1:In the West we had huge cost overruns at Vogel, huge cost overruns with the current reactor under construction. In the UK the French have seen cost overruns. So in general in the West we've had trouble getting these things done on time on budget. So the financing risk, especially with the higher rates currently, has been a big question mark around whether or not we'll actually see new nuclear being built in the US. Well, just on Monday, during this Climate Week event in New York City, 14 banks, international banks, pledged support for financing or helping to finance the growth of nuclear, to hit a target of tripling nuclear capacity globally by 2050. This was an agreement that was signed by 22 countries that ended up being 2425 ultimately at the COP 28 conference last year in Dubai. So this is a goal that multiple countries are aiming to hit and now the big banks are basically on board. This is a huge, huge development and, like I said, we're expecting new bills to be announced in the United States, potentially in other countries as well, in the West.
Speaker 2:Let's talk about the investment play here, because I think valuations are kind of hard to really get a handle on to some extent as far as which companies are overvalued or undervalued, because you can't exactly evaluate based on PE from a lot of perspectives, I think. So what are some of the metrics that you'd like to look at when it comes to looking at the equity side?
Speaker 1:The equity side. We look at a number of elements that we have sort of a platform that we use to look at a number of elements for each company, right. So we primarily are looking at. Jurisdiction of the projects is very, very important. We don't like to necessarily gamble on jurisdictions, so safe jurisdictions where there's been uranium production in the past is something we look at. We obviously look at management. What has management been able to accomplish? How did management operate during the bear market? Was management around during the previous bull market, excuse me and what have they been able to get over the line during their careers, especially in the uranium world? Because it's uniquely challenging.
Speaker 1:We of course look at just general pounds in the ground and we'll look at, let's say, enterprise value relative to pounds on the ground. That's one of these metrics historically that you can kind of compare to previous bull markets and get some gauge of relative valuation. It's not perfect. There's plenty of companies with a bunch of moose pasture and you know 50, 100, 200 million pounds on the ground that will never see the light of day, they'll never produce anything. But you can at least look at kind of the previous investing mania let's say 06, 07 in uranium, and see that valuations went to 5, 6, 7, 8, 9, $10 per pound on the ground and most companies are trading well below that currently and most of those are trading at like a fraction of what they were at higher valuations during kind of a mania phase of the previous bull market. So it's difficult to do like a forward cash flow in most of these companies because most of these companies are never going to produce anything, aren't producing anything now, won't produce anything in the future.
Speaker 1:If you look at forward cash flow potential for developing companies that are just starting to produce or you expect to produce in the future few years, most of these development companies are trading in relatively low valuations on that metric. But it's very, very difficult. This is a small market and it's largely driven by flows. So you can come in, you can try to do forward cash flow analysis and make valuation bets, but most of the time the way that the stocks move share structure is probably more important than valuation.
Speaker 1:So if you can actually look at share structure, what percentage of the overall outstanding shares are held by insiders and institutions, how many outstanding warrants and options are there and what sort of overhang will that have on the stock going forward these kind of things, whether or not it's held by an ETF. Will it be added to an ETF URNJ URNM URA by an ETF? Will it be added to an ETF? Urnj URNM URA? These passive flows really move the stocks more than anything. So the share structure is vitally important to look at and that's something we've always looked at. And digging into share structure in previous investments has paid off very well for us.
Speaker 2:Outside of ETFs. Does it just make sense to just go for the largest players? Just go for Cameco, and that's your exposure. I mean, what's the appeal of trying to go for some of these other companies?
Speaker 1:Well, the appeal is sort of kind of the general expectation that in a commodities bull market you typically have the large caps and the quote unquote smart money coming into the sector, going into what's liquid. What's liquid is the ETFs Cameco, nextgen, paladin, uec right and Sprott Physical Uranium Trust. That's what the institutions buy and so and that's one of the reasons why the passive flows really move everything else If you can find a smaller mid-cap company that is working towards eventually becoming a real company and has a relatively tight share structure. So when these passive flows come into the ETFs it can move relatively violently. That's been a strategy that has worked for us in the past, even though largely the large caps have outperformed the mid and small caps in some ways. Now, if you go back to the COVID lows most of the time you can actually you can see that the small and mid caps still in many cases have outperformed. But usually in these types of, let's say, resource bull markets you'll have the smart money move into what's liquid and that outperforms in the first leg of that market. Eventually, when things get really frothed up and retail starts to come in and pile in and chase, you end up getting small and mid caps outperforming the large caps.
Speaker 1:We still expect that going forward when we'll see that sort of flip happen is harder to say. It happened around these levels inflation adjusted in the previous market. But you know, the past is not necessarily prologue. But we still think going forward by between now and, let's say, kind of the peak of this bull market which, who knows when that's going to be, michael, that could be two, three, four years on the road, like 10 years on the road. It's so hard, it's a moving target because we have a deficit for supply, supply is not responding very quickly and the demand side is just blowing out to the upside. So hard to put a target on how long this market lasts, a target on how long this market lasts.
Speaker 1:But at some point we think we're going to see sort of that investing fervor that we have not really seen during this bull market yet, despite the fact that this has been running since December 2020 in our estimation. So we've gone a long ways. We think we have a long ways to go and we've yet to really see that excited retail sort of panic buying into this market. And we think when that happens we'll see a flip and some of these small and mid caps will probably drastically outperform the large caps. To your point, cameco is sort of a different stock. It's not just a uranium miner at this point, with its 49% ownership of Westinghouse, and we think Westinghouse is a huge, huge winner during this quote unquote nuclear renaissance. So it's not just the uranium mining stock and it's very difficult to put a valuation expectation on Westinghouse. You know what is this thing worth in 15 years from now if they're building you know two dozen reactors around the world.
Speaker 2:It's hard to say let's get another question, also from YouTube how might platinum be used to build, be affected by a nuclear build-out? I actually don't know at all how different commodities factor into sort of like the nuclear side or the commodities that you can play as a second-order demand source. Any thoughts on that side of things?
Speaker 1:I have no idea how that would be correlated to nuclear.
Speaker 2:to be completely honest, yeah, yeah, no, I thought the same, but it's still an interesting question sort of what else other than uranium? The most direct answer benefits from that you had mentioned China, and China is getting more and more headline attention because now it looks like we're taking some actions on the East China Sea front. Talk about China's ambitions when it comes to nuclear and if that either complicates things or maybe enhances the bull argument more.
Speaker 1:I mean I would say it actually significantly enhances the bull market. So China currently has 56 reactors operating and in the next five years they're going to breach both France and the United States and be the largest nuclear operator. They have 30 reactors under construction. So almost half of the reactors under construction currently in the world are in China. Like I mentioned, china can get these done for around 5 billion and then build them in five to six years. It's an absolutely insane growth story.
Speaker 1:Now there were some rumors around China's inventory not rumors, but there were reports that came out from one of the large nuclear fuel analysts. There was a few nuclear fuel analysts. One of them is the primary one, the UXC Inventory numbers globally. They do this report every two years and this report came out a few months ago. And China has grown their inventories significantly in the last two years. Now these inventories, these numbers are coming from China, so for what it's worth, you kind of have to take them with a grain of salt. But China has been the largest buyer of uranium by far globally over the last two years. So not only have they been kicking tires on projects, they are restarting the Arlott mine in Niger. Currently they are ramping up production, husab out of Namibia. They have multiple joint ventures with Kazatomprom in Kazakhstan. They also two different Chinese utilities entered into enormous long-term contracts with Kazatomprom themselves over the last couple of years. So China has been buying like crazy.
Speaker 1:People get worried about these inventories and they shouldn't be worried about these inventories. So what you want to see in a bull market you want to see is in terms of inventories, you want to see sovereign inventories growing. You want to see utilities inventories growing and you want to see in terms of inventories, you want to see sovereign inventories growing. You want to see utilities inventories growing and you want to see producer inventories dropping. That is exactly what we are seeing, because Atomprom's inventory is at a 10-year low, cameco is low on inventory, the French are low on inventory. The midterm, near-term and midterm supply story is extremely, extremely tight. So any unexpected near-term demand is going to significantly move the price because the market is so tight.
Speaker 1:Back to China. China is on pace to hit their goal. Their goal is 150 gigawatts of capacity by 2035. In the next 10 years that's an addition of 95 gigawatts. They are on pace to hit that. They're hitting 8 to 10 construction starts this year. We expect that to be next year and the years following.
Speaker 1:China is growing enormously in terms of their electricity production and there's going to be somewhat of an AI arms race between the Chinese and the United States. Okay, that's kind of where we're at with that. That's me spitballing, but that's what I believe is happening. Kind of where we're at with that. That's me spitballing, but that's what I believe is happening. And I'm not the only one saying that. 150 gigawatts by 2035, 200 gigawatts by 2040, but let's just stick to 2035. 150 gigawatts per year is about 70 million pounds of demand per year just from China, annually beginning in 2035. And of course, we're growing incrementally between now and then. The initial core load is 2x at least 2x the annual demand. So that juices things up a bit.
Speaker 1:China does not have very much uranium production in the country, so they produce what? Less than 5 or 6 million pounds a year in China. They, of course, have projects globally. They've got Rossing, they've got a share of Paladin's Langer Heinrich, they've got the Hussab mine, they've got the joint ventures in Kazakhstan. So they're producing uranium in other countries. They're also buying it by buying in the spot market. There was Chinese buying last year in the spot market Huge contracts in the term market from the Chinese.
Speaker 1:So how utilities in the United States and Europe and elsewhere are not noticing this and acting on it by securing much higher volume term contracts at these prices or not is almost somewhat alarming to me.
Speaker 1:This should be an absolute wake up call to the world to see China bolstering their inventories and buying hand over fist. They know what's coming. China is going to be a net buyer going out to 2030 and beyond and every single other sovereign and utility needs to absolutely wake up and cover their needs and they need to do it now. And the fact that we're seeing still low volumes being secured in the term market this year. You can get into the reasons why for that, if you'd like. It's just stretching the rubber band stretching the rubber band and the longer it stretches, the harder it's going to snap. That snapping point is going to come and it's not going to take that long before we're there. I estimate in the next six to 12 months we're going to see a very big move in price and much, much higher volume security in the term market because of all of this demand.
Speaker 2:Is there a dynamic with uranium in the stock side? That's similar to gold and the gold mining side, and one of the great frustrations for a lot of investors is the gold miners don't seem to move off of gold price. Then it's better to go direct with gold. Is it similar when it comes?
Speaker 1:to uranium, nuclear. We've had evidence of both right. So the first big leg of this market went from December 2020 through November December 2021. For that first year we had even the large caps doubled and tripled during that period of time and during that period of time the equities substantially outperformed the commodity. Since then it's been a general underperformance. We've seen the commodity continue to kind of grind higher, make these big moves settle down to higher lows. That's currently what's happening right now and for the past two and a half years we've basically seen an underperformance, with few small exceptions during these rallies of the equities to the metal.
Speaker 1:So to some extent, absolutely the gold and silver investors are not alone in the miners generally underperforming the metal itself when things really get frothed up and there's a lot of improved sentiment that tends to shift. So right now we've seen equities up from the bottom and we had kind of a double bottom. The original bottom over the summer was during the yen carry unwind kind of early August. Then we double bottom in early September during the WNA conference which I attended, and it was insane to see the juxtaposition of the incredible fundamentals and conversations I was having at this conference in London to the equities just disappearing day over day. But either way off of that double bottom early September, these stocks are up about 40%. That's during a period where the spot price is flat. We're in a period right now where the equities are outperforming the metal. We think obviously this move probably has its limits until we see the price move, and we're going to see that move. We're going to see it move this year.
Speaker 2:Let's talk about sizing for a bit. Right, because you know I get it. This is, you're passionate about it. It's a I always go back to. You know, diversification is a luxury for the rich. If you want to get rich, you have to take a concentrated bet, and maybe the concentrated bet is in this side of the investment world. Are you yourself, if it's your own personal investors are you all in? Are you balanced? Are you?
Speaker 1:massively overweighted. Let's talk about some of that aspect of portfolio management. No, I think, despite the fact of my own or your own conviction on any given trade, I think the general investment principles should not be thrown out the window. I'm highly, highly confident where this is going. My largest positioning is in uranium, but I do have a diversification as well myself. So I own a decent amount of precious metals, I own a bit of copper, I own a bit of offshore oil. So, generally speaking, I'm in commodities. I do believe that you know this decade is going to be a decade of inflation and, generally speaking, you know a falling dollar, which should coincide with falling rates in the US, should be beneficial for commodities. We've seen China announce that they're going to be stimulating. That should be good for commodities. So, generally speaking, I'm I'm largely long commodities, but I'm absolutely diversified and I'm glad that I'm diversified. Highly recommend Nobody put all their eggs in this basket.
Speaker 1:It's extremely volatile. There's always that idiosyncratic risk of a meltdown type event that could, at the very least in the near term, hurt sentiment and send the stocks falling significantly. So what we saw during Fukushima right. So we had a pretty bad week or two following Fukushima. The sector attempted to recover over the coming months until Japan announced they were shutting down all the reactors and the demand side hit due to that announcement. Japan and then Germany.
Speaker 1:That's really what led to the long-term bear market for the commodity. It wasn't the accident. The accident was obviously not good and caused stocks to sell off and sentiment to get hurt for sure, but it was really a demand side hit. So we could have an accident and China could just be like eh, just brush it off and keep building. If the demand side stays there, it's really the structural disjunct between supply and demand that is going to cause the price to remain higher for the commodity itself. With all of that said, there's always that risk and my friend Andrew Weekly would say, who operates a fantastic newsletter called Smith Weekly. He would say only bet on uranium what you're willing to lose, right? It's extremely, extremely volatile and because of that volatility, because the sector is so small, when it runs it generally punches above its weight, so you don't have to be all in in order to make large gains on a balanced portfolio Highly recommend diversification outside the sector. With all of that said, it is my largest positioning by far.
Speaker 2:Let's talk about with Uranium Insider. I'm sure you've got plenty of interesting picks there, but I'm more interested in terms of things that you considered to be a buy but then became a sell. Let's talk about some of the things that make you more negative or bearish on something that you were once bullish on.
Speaker 1:That's a good question. Most of the time that has to do with management. So certain decisions that management will make or not make, how management is operating, insider selling these are all things that have typically led us to sell a position that we used to be long. There have been a couple of situations where we've traded out of something due to a development of one of their projects, for example, let's say, a joint venture partner abandoning the project, something like that. Generally speaking, we have been long and we've traded in and out of some options positions over the past years. We currently have an option spread on right now and those are usually more kind of the trading positions.
Speaker 1:But generally speaking, we have high conviction in what we own. We generally want to own it for the bulk of the bull market, so we don't do a lot of trading Without all that said, we tend to highlight points in time to our membership that are good for adding. During a long-term bull market it's generally kind of buy dips and hang on for dear life. That's sort of where we're at. As the market progresses there will be more trading in and out of these stocks, but usually when we've abandoned a position over the number of years that we've been operating the sales letter. Typically that has to do with either a development a negative development of one of their projects, or some type of development of management and decisions, or lack thereof.
Speaker 2:Looks like there's a specific question for somebody who is familiar with some of your work from Steve Bates here on X have you changed your view on Global Atomic receiving their debt?
Speaker 1:financing Global Atomic is in a tricky position. I think that the recent development of banks supporting nuclear even though nuclear and uranium mining are two very different things haven't necessarily changed our position on it. They've kicked the can down the road for so long. With all of that said, I would argue. I think that the situation is improving, and some of the evidence, just generally speaking, in Niger.
Speaker 1:Some of the evidence would be not only the Chinese restarting Arlet, but also the Amaurin project that they took from the French just two, three months ago because they hadn't operated at that project during a timeline that was dictated by their permits, has now been taken up by the Turkish. The Turkish are now operating Amarwin, which is a gigantic deposit lower grades, higher costs, going to take them years to develop it, but they're probably going to have the help from the Russians because they're building. The Russians are building a nuclear reactor in Turkey. So things are moving forward in Niger. We think I mean DASA is the highest grade, best project in the entire country. It'll be a mine eventually. How it gets over the line.
Speaker 2:I don't know. Going back to the Three Mile Island point question, from North Martin or Martini, Justin, do we have a way to quantify the amount of uranium needed when we hear announcements like microsoft securing a multi-year deal with three mile island? The the supply aspect?
Speaker 1:I guess that's a good question. Let me um, I'm gonna google right now in the background the capacity. I'll tell you. But you can roughly, you can make a reasonable enrichment tails assumption and and say that one gigawatt of capacity is roughly 450 to 500,000 pounds of uranium demand per year. They, of course, will need an initial core load as well, which will be 2x the first year. Three mile island I'm looking for the capacity. I can't find it right off the top of my head, but either way, let's just say it's somewhere around the gigawatt. I believe it is. So we're looking at about 10 million pounds of uranium demand coming from the 20-year operation of that one unit.
Speaker 2:What's most misunderstood. When it comes to uranium, from the investment thesis perspective, you're dealing with a lot of individuals, presumably some institutions as well. I'm sure people have some mistaken notions bullish or bearish.
Speaker 1:I would say the thing that's most misunderstood is the physical market and how the traders and utilities operate within that physical market. There's a lot of investor frustration when some type of headline will hit and it won't move the spot market and then the spot market moves without any particular headline. So, for example, because Adaprom announced in their update their first half financials and market update back in August, that their production going forward for 2025 would be significantly reduced from the previous guidance, they wouldn't be hitting that 100% of subsoil use. There's still going to be a roughly 80ising their subsoil use agreements for three of their projects, revising them down, which is basically saying we're not going to be able to hit the previous guidance on the subsoil use agreements for those projects. The stocks, of course, during the previous couple of months had been slowly kind of bleeding out. Then this news hit. There was a one day rally spot price moved a couple of dollars. The next day came back down. People were very, very frustrated. How can they announce this? And we don't see a reaction in the physical market.
Speaker 1:The physical market moves in fits and starts. So last year around this time we had an RFP coming from a Korean utility and this RFP basically the way that the Koreans issue RFPs is they say we need this amount of uranium and we're willing to pay. This Rather than this is what we need and these are the timeframes. Give us your pricing. They say here's what we need, here's when we need it, here's what we're willing to pay. And then the market they let the market respond to their demands. They didn't get filled on that RFP for about eight to 10 months and that RFP signaled a tightness in the market and a general unwillingness for those that had pounds to sell into those metrics that they were demanding. That triggered some action in the market and then it started to snowball. Then we had we actually had the Kazakhs and the Chinese and the Russians all buying in the spot market, utilities buying in the spot market, traders buying in the spot market, and we went from $55 to $106 in about five months. That was a huge, huge rally. Well, what happened after that is utilities saw that price basically double in a short period of time. They had pulled forward in the United States especially pulled forward a lot of Russian deliveries because they were expecting it to be banned which it is and they shored up as much as they could their near term needs and then they stepped out of the market Right. So that's why we've seen such little term demand hit the market this year. Why? Because the price almost doubled from where it was last year. The price almost doubled from where it was last year.
Speaker 1:Utilities will buy time when things are uncertain and the metrics in the market are not to their liking, right, and then we're kind of hitting the tail end of that. Demand's starting to come back in. Investors need to understand that this is a long-term investment and the physical market is not always going to move when you think it should in the way that you think it should. Retail investors in particular are always wanting a price spike at a panic moment. They want the utilities to be screwed. They have to come in and just pay $500 for a pound just to get a pound so they can keep their reactor operational. That's not how the industry operates. That's not what we should be wanting.
Speaker 1:We have a multi-year supply deficit. It's going to pan out higher highs, higher lows over many, many years. And, yes, you can trade in and out during those higher, higher lows if you want, but just expect that the market isn't going to move. The physical market is going to move on your timeline when you think it will. Why you think it will? The lack of that movement isn't evidence that you're wrong. So during the summer, when the equities were falling, there was so much speculation happening on X, the reasoning why the equities weren't moving. Why is uranium at $80 a pound? There's plenty of supply. It's not moving. There's plenty of supply? No, no, there's not. There was very little demand. That's different. There's a big demand and the price doesn't move. That means there's supply. There's no demand. That means utilities are stepping out and waiting to see where this market settles out.
Speaker 1:Look at the term market more than the spot market. Spot market updates intraday. That's why everybody watches it. Term market updates once a month. It's not enough information for most retail investors. That just need more information more frequently. Term price is up 20% year to date. 20% on only 45 million pounds secured in the long-term contracting market 48 actually year to date. It's tiny. It's a tiny amount of term contract demand relatively speaking. Yet the price keeps rising. That's all you need to know. It tells you everything you need to know about the structural nature of the physical market. Demand disappears, price keeps rising. That's all you need to know. That should tell you where we're going next.
Speaker 2:Just for those who want to track more of your thoughts, more of your work, where you should point them to uraniuminsidercom is our website.
Speaker 1:I'm relatively active on X. Either of those platforms I can be reached personally or you can follow me on X. You'll be connected with anyone else that you're already not connected with who's relevant on that platform and sharing good information.
Speaker 2:Hopefully the hardcore community very much. Not only enjoyed the conversation, but it checks out uraniuminsidercom.
Speaker 1:Thank you, justin, community uh very much. Uh, not only enjoy the conversation, but it checks out uraniuminsidercom. Thank you, justin, appreciate it. My pleasure, always good to chat with you. Michael cheers everybody.
