Ladies and gentlemen, welcome to the business brew.
I am your host Bill Brewster. This episode features Mike alkin
of sakem Cove partners. Sakem is SACHEM, Cove is COVEI
first found Mike when he was doing a, a podcast in, I think I
found him late 2018, early 2019 and he was laying out the
uranium thesis and he was doing, I don't know if it was weekly,
it felt like weekly, but it was certainly regular.
He was interviewing all the junior miners.
He was talking to anybody that he could and laying his
investment out in public. And I see the trade is, is
getting a little bit more momentum.
We just had the news from Microsoft and Three Mile Island
and I always kind of said to myself, I was going to do a
uranium episode. I'd want to do it with Mike
because he was the guy, along with this guy on Twitter, John
Quakes, that were the two that were early and kind of helped me
see what they were seeing. I didn't get deep enough to
really see it, but I appreciated what Mike was doing by laying
his work out in public and found it inspiring.
So he followed me on Twitter and I was like, is this really Mike
Alkin? He said yes.
I said, dude, I'd love to have you on the pod.
He said yes, this is the product.
I hope you all enjoy it. As always, nothing in this
program is financial advice. Everything is for entertainment
purposes and education, Not just entertainment, entertainment and
educational purposes. Please consult your financial
advisor before making investment decisions and do your own due
diligence. I hope you enjoy the episode.
Before this music drops, I do want to give a shout out to my
editing team at Speech Docs. You can find them on Twitter at
Speech and Docs's docs. Dax and his team is are
fantastic. All I can say is that Dax and
his team offer incredibly good value and I very much appreciate
what they do on the back end of the show.
So if you are somebody who is thinking about starting a
podcast, please consider Dax and his team at Speech Docs.
That's SPEECHDOCS. All right, ladies and gentlemen,
I am truly excited to be joined by Mike Alkin goes by Footnotes
first on Twitter. And I would say that Mike put
out one of the podcast products that had me the most interested
in podcasting. And Mike, you can get into what
it was like when you started, but you are the person that I
associate the uranium idea with. I remember listening to you in
2019 talking about how you were going to industry conferences
and there was no one in the room.
You were interviewing CE OS on your podcast before it was a
popular topic. And that you and this guy, John
Quakes, who I have never met in real life, but he is on Twitter.
You're the two that, as the uranium trade is ripped, I have
rooted for both of you to make money on it, and I hope that's
what ended up happening because you deserve it.
Well, thank you. Thanks Bill.
It's great to be here. Yeah, that was feels like a long
time ago. We started Sage and Cove
Partners, which is the investment vehicle that we that
we have to express the view in uranium and that was back in
2018 I think it was and back in 2016 and 17 I started studying
nuclear power and uranium because the commodity was down
90% after Fukushima were in March of 2011.
So by 2016, the commodity came down 90%, the number of
companies had declined by 90%. The equities were down by about
that much. So it was very, very, those were
hunting grounds where there was no one, no one really there.
And it's, it's in markets like that where you can sometimes
find a an opinion or you can form a view that is different
than consensus. And so that's what I was doing.
Yeah, I was. And to kind of share the view, I
was doing a podcast and I was talking a lot about uranium and
there were not a lot of people doing it at the time.
There was no one doing it. And and I remember listening to
you and thinking like this guy is all in on this idea in a in a
positive way. And you were just talking about
how in your career you had never seen something so asymmetric and
just the idea of of going into an area that there's absolutely
no one. There was no interest at the
time. It was.
It was really fun to listen to you put that product out.
Well, thanks. It's hard as an investor, it's
hard to find things where there it's not properly priced in in
the market, but there are pockets of that, right.
So you're trying to generate alpha, you're trying to a
benchmark, if you will. And and more often than not,
quite more often than not, prices reflect what what is.
So the way like we typically I like to find things is look
where others aren't and that's what uranium presented at the
time. Did you go through a period
where you had to ask yourself, am I the crazy person?
Because I I see opportunity here and no one is listening.
It's a really good question, Bill.
So the hard part about looking at markets that are left for
dead people, you will use the term contrarian is you are
running into the fire, right? So right off the bat, you're
probably going against consensus.
But when you're trying to form a view, you start to do your own
analysis. And that's one of the things
that human psychology comes into play when you're looking at
markets that are that are have been so beaten up is recency
biases creep in and permeate all corners of the market.
It could be the buyers, the sellers, the commentators, the
forecasters. And when you come into a market
without any of that baggage, but you understand the basics of how
to analyze companies and industries and understand the
drivers of supply and demand. There's somewhat of a playbook
to to doing that on both sides, both supply and demand side.
So when you come into a market, a disadvantage, it could
actually be an advantage. A disadvantage might be I, I
didn't know anything about nuclear power other than what
the average observer might have known and probably less.
I certainly didn't know the uranium market.
I So I came in without any biases and I came in and I said,
let me just let the numbers and my conversations with people who
understand this guide me. But to do that, I, I had to do
the numbers and I had to understand supply and demand.
I didn't want to take an investment bank's model at first
because you need to understand where they are.
But I said, let me build this from the bottoms up.
Let me let me understand all the operating minds in the world and
what the supply situation is, what the costs are.
Let me understand the nuclear reactors, how many countries do
it? What's the demand outlook?
Because the narrative at the time was nuclear is dying and
it's going away. And after Fukushima in March of
11, nobody wants it. And that's why these things are
priced the way they are, the commodities and service
companies. So I but if you just take that
at face value, you'll never find anything that might be a hidden
gem, if you will, or hiding in plain sight.
So coming to this market, I did that, I spent a good almost
couple of years doing supply demand on my own.
There's 430 reactors around the world and understanding the
country where they operate, the attitude towards nuclear,
understanding the math involved, right.
Often as investors, you look for heuristics.
What? Well, how many reactors are
there? How many pounds per reactor
would there be? Right?
You're looking for rules of thumb.
And as you start peeling the onion back, I realized that
rules of thumb don't apply here because the amount of uranium
needed for the reactor fleet around the world is not always
the same. It depends upon enrichment
capacity without. We won't go down that rabbit
hole, but there's a whole other segment you need to to learn.
And so as I was doing that and I would go to these conferences
and I would talk to nuclear fuel buyers, people who buy this
stuff. And it was hard for me at first
to really understand what I was dealing with because as, as
somebody at that time having over well over 20 years of
experience as a hedge fund investor, it was very, I've
talked to people in all industries that were on all
sides of the equation. But the people buying it,
typically we're curious as to what we were thinking as, as a,
when we were questioning them. If we were talking to a, to a
buyer at a company that was buying a product, they would
say, what are you as an investor hearing?
What are you hearing from the other side?
What are my competitors saying? What are you hearing about
inventories? And they were inquisitive.
That was not this cohort. As I started speaking to nuclear
fuel buyers, I, I was met with a, an enormous wall put in front
of me telling me I'm an outsider.
I'm not a nuclear engineer. I don't know what I'm doing.
I should basically stay away and, and they've got it.
And I thought it was that, that attitude that just said to me,
something's not right here because the numbers I'm coming
up with, whether I'm looking at inventories or the amount of the
cost of the supply or the actual demand.
And for context, at the time the price of uranium was 17/18/19
dollars a pound and it would say what it was trading for in the
market. And as I did the analysis, I
realized that the average cost was somewhere in the mid 50s.
And I'm not that sharpest tool in the shed, but I know that if
something cost you mid 50s to make, you can't sell it for 17
for very long. So it was then and I had to peel
back the onion saying well, why are they producing it at that
price? And you start to understand that
there was a that the uranium market is 1 driven mostly by
long term contracts. You know, well, well north of
80% on average will trade in a long term window with contracts
that cover 57101215 years depending on the, the, the
contract. But that's where most of the
pounds trade. So after the Fukushima event, a
lot of these uranium producers, when the spot market had
declined precipitously, we're still selling into much higher
prices. So my my understanding of that,
when I was talking to fuel buyers at these nuclear
conferences, they were telling me that the price of uranium was
17 and 18. It was going to 10, it was going
to five. There was all this uranium out
there. And that's not what my math was
showing me. What my math was showing me was
that the model was that the long term contracts that had been
signed before Fukushima melted down in 2011, we're going to
start to expire and rather rapidly.
And uranium producers could not sell $17.00 uranium when it
caught $1820 uranium when it cost him 2 1/2 times that, that
at some point production would have to start to shut down.
And so you ask, do you think you're crazy?
Yes, because as I'm talking to people who are obviously very
sharp, they're nuclear engineers.
It's but it's understanding as as you realize as an investor,
you have to understand incentives and you have to
understand market structure, right?
And Charlie Munger would always say, you know, show me the
incentive, I'll show you the outcome.
Well, it was as I was starting to go and talk to these folks
and realizing a couple of things.
Number one is they had no interest in what I was learning
on my journey. And even though I'm not a
nuclear engineer, I'm still somebody who's a market
participant and I'm still somebody that.
And, and while I don't speak their language, I certainly is
sitting in a, at a, at a dinner table or a lunch table or at a
bar having a beer with them. I certainly could hold my own in
supply demand conversation. And as I would talk about what I
was learning and uncovering, I was shot down at every step.
And I thought, wow, that's interesting because I'm seeing a
recency bias. What is now will always be.
And so they were, they were kind of latched on to that.
And as I started peeling that, why I'm thinking, why is this?
I've been doing this a very long time.
And over the years I've had many, I've been wrong many
times. I've been right more often than
not. But you're wrong and you're
trying to understand where you've been wrong.
And I was thinking, what is it? Why are they so uninterested in
hearing what an outsider's view is?
And as I started to explore that more, you start to understand
the makeup and the cost structure of a nuclear reactor,
which I've known. But it really started to come
into clear vision for me was the fuel.
That uranium is just one part of the fuel cycle that goes in.
You have uranium, you have they convert uranium from a powder
into a gas. It then gets enriched.
It then gets fabricated into pellets.
That takes 18 to 24 months to do this stuff.
So there's many different, there's many different stages of
the fuel cycle. And as I was starting to, to
think about what is it, what, what are the cost of that and
the cost of that, that entire, all those stages are probably
around 20 to 25%. And then what's the cost of the
uranium of that? And then that depends on the
price, but it could be mid single digits, high single
digits, somewhere around that. And so I, it was then then as
you start talking to them about that, you realize it's not a
meaningful cost. Let's for comparative purposes,
if I'm running a gas natural gas power plant or a coal power
plant, my feedstock, the cat, the gas natural gas in the coal
are 80 to 90% of the cost of operating it Here.
The uranium is single digits cost of operating it.
So what I what I started to the vision that started to come to
me was uninterested market participants.
They're in the market very infrequently.
Why are they uninterested? Because the cost is de minimis,
not to say it's meaningless, but it's de minimis.
And then as I started to explore and ask questions at why are you
not as concerned about this? I was obviously met with a wall.
But what started to come to me was, and I asked flat out at a
particular dinner at a world nuclear conferences, if you had,
I asked one actually their floor fuel buyers at at a dinner.
I said if I were to, if you all had a really enterprising fuel
buyer that did the supply demand work and said, you know what, I
think consensus is wrong here. We are 17, eighteen, $20 a
pound. We should be buying uranium
because the forecast going out of the future are for deficits
to be forming. Let me ask you a question.
Do you all, if the price were to go parabolic and you had all
these great cost savings for your plant, do you participate
that in any way, shape or form? Are you rewarded financially?
Are you rewarded with a, a promotion?
The answer was I got laughed at was what are you talking about?
We're paid to secure fuel. So there is no these were buyers
and and as you come to a market as an investor, you think buyers
are traders, They're commercial creatures.
These aren't, these are really smart nuclear engineers that
happen to buy a product that happens to not be a major cost
component that happens to be in, there's infrequent price
discovery on their part. And so it's a lesson in
understanding incentives and market structure.
And as I started to do that, I kept being told how wrong I was
by them. So back to your question that I
think I was crazy earlier in my career, I would have probably
thought I was crazy. I was surprised, but I've
learned over the years that narrative Dr. stories, but you
can outrun the numbers. You never want to build a
modeling and stick your head in a model and just believe your
model because that's how you get run over, right?
Garbage in, garbage out. But this, it could be garbage
in, garbage out. But when I look back over my
career where I've had bigger, bigger wins, it's always been
driven by keeping it simple, keeping keeping the math simple,
understanding it and knowing I know how to do basic math.
That's what this is. It's not complicated, but
understanding the narrative sometimes causes people not to
even bother doing that, right? So people sometimes are a lot
lazier than you might think they are.
Everything that, like I said, most things are kind of priced
in, but but when things are at extremes too optimistic, when
things can't get worse or things can't get better, some it's
somewhere in between and people, people latch on to what is.
And so I, I didn't, I, I started to actually try and what became
more was trying to figure out, get in their head as to what
makes them realize that they're wrong.
What is it that's going to cause them to, to have a moment.
And, and the way I went about doing that was studying the
past, right? Because it might not rhyme, it
might not be exact, but it will rhyme.
And especially in these deeply cyclical industries, human
behavior is human behavior. And, and I, I realized in the,
in the last cycle and studying it, which was a big cycle, which
was nearly the mid 2000s where prices went from $7.00 to $137
for a pound of uranium. It was the same narrative.
It was the same lackadaisical attitude.
It was the same approach from the cohort that bought it.
And because no one loses their job for paying a higher price,
it just continued. And so one of the things that is
hard for a lot of for some institutional investors to do is
to arbitrage the time. And here it was, you know, it's
always hard. Everyone said, what's a
catalyst? What's the catalyst?
Sometimes you don't know. You don't know what the catalyst
is. You just know that there's a
mispricing. The price can't stay at 17,
eighteen, $20. If it's cost in the mid 50s,
it's got to get into the into the 70s, eighties at least at
the time. That's pretty asymmetric.
Could it go down a few dollars? Could it does it have to go a
lot higher? Yeah.
When? Not exactly sure, but somewhere
within the time frame of a year, 2 years, three years where
prices need to start moving. And if I'm right, I'm going to
annualize it a much greater clip than I could find a use of
capital for other stuff. So that's kind of how I went
about it. I was surprised not I didn't
think I was crazy. I actually knew I was on to
something. The more of them I spoke to, the
more obstinance I was met with, the more conviction I read I
had. I continue to bring up the
podcast, but it was fun to listen to you on the podcast go
through that because you were laying it out in real time,
right? And I remember you talking to
some CE OS. I mean, you were talking to
junior mining companies. You're talking to the big boys,
but you're just like, the people are not listening and they're
not seeing what I'm seeing. Yeah.
You know Bill and there are people over the years now who
I've, you know the like the price of uranium sitting in the
$80.00 range. If you're looking at a long term
contract with that's market related today with floors and
ceilings, a producer is going to sell to a utility with the price
of 80 bucks long term price between 80 and 82 depending on
which forecaster or price report.
So say $81.00 a utility is going to pace probably $75.00 for a
floor. I mean, yeah, floor.
So the producer, if you think about asymmetry today.
Long term price 81 bucks that's a contract that kicks in in the
fourth year and forward from today the producer is going to
get a minimum of 75 and the ceilings that the that the
utilities want right now, those are anywhere from depending on
who the producer is and what not you get 125 to 135.
So if you think about that, how asymmetrical that is for a
producer, that's a pretty, it's quite a fascinating asymmetry.
But but today's investors will stare even if that's what all
this year's your talk, they're still looking at the spot
market. And so you know, in uranium
there's two markets, there's a spot.
And then long term and I, as I mentioned a few minutes ago, the
long term market is where you know, well north of 84 N of 80%
of the pounds trade. And the spot market is a market
that is a market where some producers might have a few
pounds that are uncontracted for and they might put it in there.
Some are sold, some producers have contracts with traders that
they'll sell some pounds to on spot market pricing, but most of
the pounds that trade there, but more than half of them.
So if if 15 to 20% of the pounds in a given year trade in the
spot market, half of those pounds are traders churning
amongst themselves. Producers buy a little portion
of the rest and utilities buy a very small portion.
And so utilities, the end user is buying very, very, very
little in the spot market. But the spot market is where is
it at the end of each day is where a price is reported on it.
So at 2:45 PM, the price will come out and investors will
stare at the spot price. And it's such an opaque market.
There's no, it's not electronic market.
You, you don't see how much volume traded.
We actually buy physical uranium.
So we, you get a sense for how much, many days it's, there's
nothing traded. Think about that.
It's a six, seven, $8 billion physical market that nothing has
traded on many days. And it could go like that for
weeks, but yet the price might get reported a little.
If the bid and the ask move around without a trade, the
price can get reported. And at the end of the day, a
price would be reported. And people say, oh, look at the
uranium price. And they'll, they'll take that
view and form a view of supply and demand in the market.
They'll form that view of what's happening as a proxy for the
uranium story and nuclear power story.
And it's absolutely absurd it it's not that.
It's not an insignificance of price, but if if you're a
trader, then it matters to you if you're pricing long term
contracts, they're aware of of what the spot price is.
But long term contracts, again, we're the bulk of the pounds
trade are driven by the economic supply that the economics of
supply and demand what how many economically viable pounds are
there? So that price, the long term
price is reported once a month. And so the vast majority of
pounds trade in a market where there's very infrequent price
discovery and a lot of opaqueness.
And so where do investors turn their attention and choose to
focus their time and energy on the market where value is not
really created the spot market. Why?
Because it gives them a a barometer, right?
And and we talked about investors like opaque markets.
Why you can find an advantage is that it's, it's not easy.
If it's hard, less people are inclined to really go down and
and dig deep. And so they will follow price, a
price that is not as important as what creates value for these
producers of uranium. So it's understanding market
structure and it's understanding that.
And it's, again, you go back to your crazy point, when you are
looking at markets like this, you just have to have the
conviction if you've done the work that that yes, you can be
right. And when you're asking yourself
if you're crazy, which you have to do every day, in my case, it
was just relying upon my conversations with people, a
little bit of experience and understanding that that usually
you can't outrun good math. Yeah, I mean, so when you, when
did you decide to really go all in on on the idea?
I mean, when you six months into the research process, like what
was it 'cause if I'm remembering correctly, I mean, you, you
really leaned in and it was a career pivot for you.
I mean, not, not a pivot in that you were always an investor, but
you were like, this is the idea. Yeah, yeah.
Versus going from saying a generalist more focused on
cyclical industries, but to this is the industry.
Yeah, that was late 17, early 18 and in 16 I was was a journey,
right. It was hey, I don't know this
market at all. I couldn't tell you the first
thing about nuclear power, but so I came at it when anything's
down like I said or in in the beginning 90% like that, it's
worth a look, but I came at it. But first ten years of my
career, I was mostly a short seller.
I was looking at looking for companies that were economically
broken or had some bad characters.
So I was looking and doing that. You're doing stuff away from
consensus, right? You're looking, you're doing
your own research and you have to be aware of consensus and
understand how it squares versus consensus.
But I certainly you have to have the courage of your conviction
and you have to sometimes make a bet and not sometimes, but
you're making bets that are against mostly consensus.
Things are more often than not want to go up.
So it was once I started to like, so I came in as a short
seller if I could prove the bear case and the bear case that I
could find was nucleus dying. It's too expensive, it takes too
long to build. Renewables are coming, Wind and
solar will eat their lunch and that's pretty much it.
And I said, OK, let me do that. And it was very quickly that I
went down the wind and solar right.
And I didn't really hadn't known that too much other then what
everyone else is reading. And as I did that, I realized
you can't replace a base load energy source with an
intermittent energy source. That's not how energy
transitions have occurred. And I read a lot of stuff by
Vaclav Slim, who writes great stuff on the energy market and
Smeal. Right.
So you did I say Slim Smeal. Yeah.
And I, but I read a lot of his stuff early on and he just
realized pretty easily and energy transitions occur over
time, long periods of time, not in a time frame that esters or
Wall Street wants them to or the City of London wants them to.
And that's what I was getting the sense here.
And it was not easy to prove the bulk case for wind and solar,
nor was it easy to prove the bare case.
And so as I started, my first quest was demand was OK.
And how many countries produce nuclear power?
30 at the time I needed to understand the attitude of each
of those countries towards nuclear.
Was it negative? Was it neutral?
Was a positive? And then by just going to the
World Nuclear Association and downloading databases of, of
reactors around the world, you start to put them on a
spreadsheet. You start to understand the size
they are, how much output there is and the country's attitude.
And I went draconian and I said, OK, if a country's neutral,
let's assume they're going to want to start closing reactors,
some of them. And as I did that, and it took
quite a while, several months, I realized that even with the
draconian approach, there was still growth in nuclear power.
It wasn't dying and it was at the time 1112% of the global
electricity grid. That's a big chunk.
And realizing that I get it, people want wind and solar, but
just because you want it doesn't mean it's going to happen.
And what I also realized was that's great.
When the wind stop blowing, the sun's not shining, you need
something else. So how's that going to work for
the CO2 emissions when you were going to have natural gas or
coal-fired back up? And I was, so I was, I started
to realize that it might, there might be some, some lengths
because the, the case at the time was nuclear was dead and it
wasn't dead. So as long as there was a growth
side of it. And then that's when I started
doing them, looking at every mine in the world, every
prospective project of the world and realizing where the costs
were and how far disconnected they were.
And so as I started to do that, that's throughout 2016 and then
in 2017, you started to see some production cuts started to come
in. And I was going to nuclear
conferences at the time. And I had just had enough
confidence after doing supply demand and studying the
inventories that I can now have conversations with people who
buy this stuff. And whereas, and I was OK to
say, hey, look, I'm new, go introduce myself, walk up to
them. And I'm really new at this.
I'm probably going to ask some really stupid questions, but if
I could get a few minutes of your time.
Yes. And I, I met someone who was at
the state owned producer because auto prom who is kind enough to
invite me to a dinner one evening with the number of fuel
buyers. And it was those conversations
with the people buying it where I said I need to do this because
my math might be a little. I'm still learning some of the
stuff, but I, I think I've got the supply demand situated.
And as I was starting to look at it, I said, it's not dying.
I've got some and we've got a little bit of growth.
The prices need to move materially higher and the sell
side had disappeared. The right, the most of the banks
were writing research on this fire their uranium analyst or
they transitioned them to some covering something else.
And I was like, this is really an abandoned industry, but it's
an abandoned industry that's 1112% of the global electricity
grid. How is that possible?
And but it was, and then it was during these conversations in
early and mid 17 where I said, I'm right here, like this is a
symmetrical risk reward. And I started, I, I wrote a
research piece for myself and I started circulating it amongst
some of the people I have a great deal of respect for who I
worked for in the hedge fund business and who I was friends
with. And I said, take when you have
some time, take a look at this and tell me where I'm wrong.
And some people I really respect.
And they came back to me and they said, wow, nothing about
uranium. This is really interesting.
And they had a host of questions And I started tracking down
questions and looking for answers.
And that was late 17. And a few folks came back and
said, have you thought about starting a vehicle?
Because this makes sense. And if if you wanted to express
your view, I would express my view alongside of you.
And I had considered it. I've had times in my career
where you just say I have to do this, you have to make a big
bet. And that was this where I could
not look around at the other part of any part of any market
and say I could see this type of asymmetry.
And that's when I decided to express the view doing that.
And you're putting it on the line there, right?
Because you're either right or you're wrong.
And but that's the beauty of it. The market will tell you
eventually. And so that was it.
And I don't know how many of those you see in in a career
lifetime where you feel as though you just look and say,
wow. And you have to be careful,
right? Because still everyday, Bill, I
come in assuming I'm wrong. I come in every day assuming
there's someone smarter than me out there doing this.
I assume every day there's someone that's found some piece
of information that I was unaware of.
But you also have to you also as the as in the uranium investment
as as it's grown and as the price has gone from 1718 up to
the 80s at one point it hit 100 very briefly.
But as that's in the spot market in the term market it
continuously grow. It's it's up 20% this year.
The term price while spot is backed off a bit, but again, the
price I'm focused on its internal price.
But then as it becomes more populous, you start to get a
bigger investor, a broadening investor base that comes into
it. As that happens, you bring
people into it who are bringing their own approach to investing
into it. And this is you've seen a lot of
the bigger hedge funds some some some hedge funds are starting to
come into it and you can't will your way to a thesis to truly
understand it. Yeah, I think you have to lay
out the numbers yourself and do them and understand enrichment
math. I've spoken with some folks and
they do very rule of thumb math on reactors.
And that's a sure way to get your head handed to you in this
business from a financial perspective because rules of
thumb in this, you got to be more exact than that.
So it's a fascinating sector. And again, it's one where it's
still as, even though it has become a bit more popular, it's
still a very small industry. It's still as opaque as it was
as the day that I started and what, what people don't see.
And I, you mentioned footnotes first.
I've gone dark since probably 2019.
I'm. Yeah, well, I was looking for
you and I was like, he's gone. And then when you came on, I was
like, is this really you? I still have it, but I, I just
kind of went dark because we're so in again, we have consensus
numbers that are from industry forecasters and we're, we're
clients of them. And we, we've really over the
years taken issue with industry forecasts.
And what I don't do publicly is I'm not, you know, is, but we do
privately is, is we advocate for our view with the industry
forecasters that here's why we think we're right.
And here's think about the IEA, right, how they're always
changing their numbers. All these quasi government
agencies are always, they're not economic creatures and they're
not commercial creatures. And so we do a lot of quiet
behind the scenes activism, if you will, in that regard.
And a lot of a lot of what I would see on Twitter is, is just
conversations that I'm going to wind up resorting to.
Let's look at the math. And I'm not going to share our
math with people. So I just decided to back off
there. Well, I mean, that makes sense
in your position. In this particular thesis, you
basically become the source and then you're giving away all your
IP. It doesn't make sense.
That's a fairpoint, yeah, Yeah, Agree.
But. When you were starting, it was
like I said, it's just it's cool to see somebody that put it all
out there in real time. And I kind of see the thesis
floating around now and I just always go back to your early
stuff, 'cause I'm like, that's the guy that I'm rooting for in
this entire trade because he put it all on the line and it's fun,
man. It's cool to watch.
Are you as comfortable now that it's got some attention on it?
Or do you find yourself the kind of investor that that is more
comfortable when things are more hated?
That's a great, great question, a fantastic question.
First of all. So I see a lot of the bigger
funds will come in. And what's amazing is I've been
in a hedge fund business a long time.
I worked at a couple of really big hedge funds.
I was a partner at one for for almost a decade.
Yet I will see many of the bigger, some bigger name hedge
funds in the trade and never receive a phone call.
I get phone calls from investors, from hedge fund guys
or from mutual fund guys who want to ask questions.
But then you see some bigger firms come in and so I get fair
amount of inflow, but I'll see a lot of stuff that you would
think that if there's only a very, there's only a couple, 3,
a few people that do this, you might get a phone call and just
say, hey, you want to kick it around.
And that is not, that doesn't happen all the time.
So it doesn't happen a lot at all.
And so I their idea dinners as investment banks will hold idea
dinners, I might send one of my guys or I, I will very rarely,
occasionally I'll go, but not all the time.
But in, in the last year, you've seen a more accelerated pace of
bigger funds coming in and they have thesises that they are
convinced is they're going to drive it.
And then it all always reverts back to what spot pricing doing
and and you know I'm not going to engage in that.
Yeah, well, that that's nice to see though, because you can say
to yourself, well, people still aren't even asking the right
questions. Absolutely.
But I do see. So for instance, some periods
where when everyone's piling in and they want to buy it, I'm
like, if it's for the right reason, yes.
But if it's because, you know, they think Spot's going to have
a huge move, you know, like this year is a great example.
Spot is down. I don't know, high singles, low
teens term pricing where that's where the magic is made is up
2122% and why? Because that's telling you that
utilities and their and utilities have not contracted at
the pace they did last year meaningfully below and on a
lower volume, there's prices are still higher and that that's
kind of like perfect, right? It's because if volumes are
down, then normally pricing is down here, volumes are down and
pricing's up because there's really very little economically
viable pounds. And so that will sort itself out
over time. But you know, you got, for
instance, a lot what we're seeing now is with data centers
and AI. And just on Friday, Microsoft
announced a fabulous deal there with the Constellation.
They're bringing back Three Mile Island.
Think about that. Microsoft signed a 20 year power
purchase agreement with the constellation of bring back
three of all reactors 3 mile island, right.
So why? Because they need the energy for
their data centers. So this is a huge deal for both
That puts the Good Housekeeping seal of approval on.
It's the second deal from a from a major tech company, but it's
great for nuclear and, and earlier in the year you saw a
deal much earlier in the year and that kind of drove a lot of
investor interest. And I understanding the role of
AI and data centers in nuclear power and uranium is important.
It is fabulous for nuclear power plants.
It is fabulous because it gives them a, it validates how
important clean energy is, a it validates how important reliable
base load energy is. And the dollars from this are
fantastic for the nuclear power plant.
And I think it creates a great reason to build new reactors.
But also you're seeing plants that were closed come back,
Palisades, Michigan, this one coming, this one coming back.
That's, that was in nobody's uranium forecast.
So those are great, but you have to understand the context of
that. That's overtime, right?
So overtime reactors will get built.
Overtime, these plants will come back online.
The physical spot trader of uranium right there, 7 or 8
traders of physical uranium with not a lot of balance sheet
capability. Not that they're small entities,
but the uranium trading side of it doesn't have significant
balance sheets. They see an announcement,
they're not going to run out today and buy uranium for that
announcement because a plant is coming back online in three
years. That's just not how it works.
It's wonderful for the overall nuclear theme.
It's wonderful for all the future uranium needs, and it is
great for all of that. But if if people pile in
thinking that it's going to immediately go parabolic
tomorrow, they have to understand the context.
Right. And again, they're focusing on
spot where you'll you'll see that really manifest itself is
in the is is in long term pricing because the utilities
will want to go out and secure for these plants.
So it's just as I see people come in and if I see the
narrative, their narrative, right?
I have to be aware of their narrative.
I have to respect their narrative.
I have to respect their viewpoint and it, it informs how
I'm positioned. Ultimately, all the stuff is
great for it, but you just have to understand who the
participants are or what their expectations are of it.
And in, in such an opaque industry, I, I, I can't tell you
how many times I've spoken with really sophisticated investors
that I talked about the difference between spot and
term. And then all of a sudden spot
will have a few days down and they're calling up saying,
what's wrong? What are we missing?
You're not missing anything. That's not where the value is
created. You're missing that it doesn't
matter. Yeah, you're missing that it's,
you know, but you realize that people really need something to
look at every day, right? Just taking and, and again, I, I
think a lot of it goes back to a lot of investors like to take
shortcuts. And I get it, they're looking at
many different industries are doing different things.
They use heuristics. I so I think that's where the
opportunities created. Sometimes it creates some short
term noise. You just had to pull back in the
uranium equities in the last few days they've been ripping, but
you saw people piling into it on AI and data centers in the
spring and all of a sudden uranium, the term price was
going higher, but the spot price was going down a little bit and
people were saying, wait a second, how does that is?
So what's happening? Why is the term price?
Yeah, where is the spot price going up?
You're like, Oh my God, you know, like, what are you like?
OK. So that kind of informs how I
want to be positioned as in terms of do I want to be fully
invested at any time, Do I want to have a little bit more cash
around that type of stuff? Yeah.
So back back what six years ago or so, you weren't having those
kind of conversations. But now, now positioning might
might matter a little bit more. Exactly.
And then you get to the point where you just kind of RIP the
Band-Aid off and just say, you know what, I'm, I'm ripping the
Band-Aid off because the fundamentals are so good that
I'm willing to withstand some more volatility.
And, and, and in, in my head, we're kind of at the RIP the
Band-Aid off stage. You know where, yeah, I know
you're going to take, you know, sometimes you're going to see
some volatility down because maybe the spot price moves down
a buck or two, whatever it be a few bucks, who knows?
Or it goes up a few bucks. But but in in the stuff that I'm
more and more honed in on, I just, you feel really good about
it. And those are the times where
you just say that's it. And eventually the others will
catch up to it. But yeah, we're talking about
six years ago, the risk from the Russians.
I mean, I remember giving a presentation at a conference, I
think it was in Vancouver, it might have been in 2017, talking
about the geopolitical risk. And one of the things that I
couldn't understand as a layperson coming into this is
how is it? Am I missing something or
between the Russians, the Kazakhs and the Uzbeks, they
said half that. The Americans buy half their
uranium from them and nuclear power is 20% of the US electric
grid. Like again, I know I'm not a
geopolitical expert at all. I know probably just what the
average person does about it. Now I pay more attention to it
the last several years because it's what I've needed to do, but
I'm certainly no expert. But really like you're AUS fuel
buyer and you feel in a Western or Western European fuel buyer
and you really actually think that that works.
You think that if you're AUS produce, if you're AUS nuclear
power plant and you look back and say in 1981 and 82 that the
industry used £50 million uranium for its nuclear power
fleet and it bought £44 million from America, American uranium
producers. And Fast forward to 2017 and
today you use roughly 50,000,000 lbs uranium and you buy and in
the US produces a few 100,000 lbs.
Like you think that's normal. That's just not normal.
That's not good. At some point, you run risk of
something happening and that, and at the time of my 17
presentation, I called it, the US is playing checkers while
Putin's playing chess in, in terms of nuclear power and
uranium security. And so, you know, Russia
controls 40% of the global enrichment market, 30% of the
conversion market, 15% of the uranium market.
These are all part of the fuel cycle.
So just looking at that, at how lackadaisical the US fuel buyers
are, I could say, and not every one of them, but more, way more
of them than not. So at the time, I felt those
were important points to bring up and people just yawned at it.
And even today, the fuel buyers, I don't, I mean, I'll see them
in a conference, maybe I'll chat with them.
But I, I've been there, done that.
And they were, they've been telling me I'm dead wrong since
2017. I mean, I, I went to the Nuclear
Energy Institute, which is the largest trade body in the world
besides the World Nuclear Association.
But in the US, it represents the interests of those in the
nuclear industry. It it it read the utilities and
they represent them in Congress and they go lobby for them.
And back in 2018, we went to them and said the forecasts that
are out there from industry forecasters, we think are not
only wrong, but they're materially wrong.
And it's if they're driving, looking in the rearview mirror
and they said, OK, go take a walk.
We don't know you. And we kept at it and I kept
going to them and finally found someone there that was very
willing to listen to us. And we said, look, here's our
math and here's a deck and here's our math.
And it's not our own forecast. This is our analysis of the
forecasts that are made. And This is why they don't make
sense. And again, we're not nuclear
experts. And, and I was very grateful to
have somebody there take the time to listen.
And they said, OK, we'll come speak at our annual conference.
You can speak to the fuel buyers.
And we did in 2018 and that was I think fall of 2018 and I stood
up there and said you folks have done a wonderful job.
You were buying, you're not signing long term contracts
after Fukushima, the price uranium was in the 70s and and
then it's down in here in the high teens, low 20s.
Congratulations, you didn't re up on long term deals.
You bought you, you sucked some pounds out of the spot market.
That's when spot matters when there was excess supply, which
there's not now said. So you guys have done a good job
over the years and you're looking at industry forecasts
that would suggest to you that you can still stay out of the
contract market for a long time. And let me just share with you a
viewpoint as to why that's different.
And the numbers I'm going to present to you are not our
numbers of our our outlook on the future.
It's uranium math and nuclear math as you guys know it and why
it just seems like it's illogical.
And we did that and I stood up there for, I don't know, 3540
minutes and I came off the the stage and someone approached me
and said, how dare you come here?
And I said I'm sorry. They said I you're just some bad
Wall Street person who only cares about money.
And these are good hard working people.
Like what is wrong with you? And I, I said, like, are you
serious? Like what are you out of your
mind? Like, who are you?
And so I said, you have a minute?
And she said, why? I said, well, come over here,
Let us show. I was with Tim Shaler, who works
with me. And I said, let us show you like
how we come to these conclusions.
Let us show you what a model looks like.
And it's, you know, it's enormous, our model.
And again, you don't want to get lost in your model, but that
that's how we drew our conclusions.
And not long into showing this person, she said, wow, I had no
idea. I thought you were just some to
a bad Wall Street guy. I'm like, well, I don't even
know what that means, but OK. And, but, and, and so prices
moved up a little bit throughout 2018 and we kept coming back to
the NEI saying prices this forecast aren't changing and
they need to. And they said present again.
And I did that in Nashville and 2019 and in the fall, and I was
met with the same disdain. Fuel buyers would come up to me
and say, you have no idea what you're talking about.
I could buy all the uranium I want.
Prices are going to 15 and 10. I had one of them taunt me by
saying things. It was really like they were
really I was. Again, not all, they're not all
like this. But I was really, really
surprised and taken aback by the lack of intellectual curiosity
about a someone else's view from people who are really bright.
And so that I can't tell you how much conviction that has given
me. And one of the things you see
now is you have expert networks as who provide hedge funds and
mutual funds experts to speak to in any industry.
And so if you're a hedge fund wanting to get up to speed right
now on the nuclear power industry, you're going to say,
hey, go get me 3 nuclear fuel buyers.
I'd like to speak to them about uranium and they're going to get
on the phone and they're going to speak to then and for years
that I'm sure they've been doing this, they're getting it on the
phone and speak to three fuel buyers and say, yeah, there's
plenty of uranium out there. And those are the same folks
when the price was 17 was telling me that.
And and versus here you're seeing floors and ceilings at
1:25 and 1:35. They are the gift that keep on
giving. Yet the way the structure of the
research process is they're going to expert networks.
They find these people and if you don't understand and have
them understand the how the how the sausage is made, you're
going to be misled. Not not they're not miss
purposely misleading. It's just what their own beliefs
are. And so it's it's it for me.
That's a beautiful thing, but I've been doing this a long time
now, but almost 30 years as a professional investor and I've
never seen a cohort of people who are so uninterested in
hearing the other side of the story.
And so far I've seen them them prices move up 4X in there
against them and they still have the same attitude.
Which, to your point there, it doesn't sound like they're very
incentivized to care. There's there's no incentive to
very little to none incentive to care other than maybe you would
think pride. I don't know.
But it doesn't matter if they don't.
It's just not a thing. But we actually chuckle because
we if we go to if, but when we go to these conferences, I mean,
you talk to them in the hallway or in a bar, it's as though
you're an adversary. It's very bizarre.
They don't have an incentive. They don't get it doesn't matter
what they pay. So that's the bizarre thing is
they should want to hear what do they care, but they don't.
I don't know that I'll ever see anything like this in my career
again. And you get so few.
Well, I hate to quote Buffett stuff because it is what it is,
but you know, if you had a punch card, how many times would you
punch that card in your lifetime?
And investing? I, I don't know where I'll see
anything as asymmetric. Is this because of the
information asymmetry and the inner working?
It's it, I, I said, I don't know when, but it's, it's an MBA
class in inefficient markets is what this is it the, the whole
uranium trade is an MBA class in how how to find value where
others aren't looking and then at later on the whole other
aspect of why market structure and market incentives are so
critical to understand. When you say that you don't know
if you'll find anything is asymmetric, are you still
thinking it's that asymmetric? Are you thinking about when you
first stumbled into it? That's a really good question.
I, when I started this, I would have thought you'd get uranium
prices up into the, I don't know, 70s somewhere and you kind
of call it a day because in our modeling, I never really put
much growth in there. What I never anticipated was the
demand that we're seeing now when you were listening to those
podcasts I was doing in 2019 and the 2018 when we really started
out on this, the attitude from the major nuclear power
producers in the world was negative.
So United States the largest, it's 20% of the electricity grid
in the US. At one point it was almost 30%
of global nuclear power reactors were closing.
Half the markets are in competitive markets and it was
challenging for them fighting heavily subsidized wind and
solar. So that out and the outlook was
more negative than positive. South Korea, you had just had a
new president come in who ordered all reactors under
construction to stop and they were wanted to reduce the
reactors and they're a major producer.
The French who derived 75% of their electricity from nuclear
power in 2018-2019, had said they were going to go down to
50%, so they were going to reduce their dependency on
nuclear. The Japanese were still reeling
from what was from the Fukushima after after effects and there
were 54 reactors at the time. In March of 11 when Fukushima
went down, they shut them all down and they started importing
LNG. But at the time nuclear was 30%
of their electricity grid. So at that, at that time, we
just thought they might, they only had a couple running.
You thought maybe they might not bring any back.
The UK had the same attitude. It was permeating.
So and, and I even want your cone in on that.
Fast forward to today, the French are not only not going to
go to citizens from 75 to 50, but they're going to build like
14 new reactors, monster reactors, which is enormous. the
US is seeing life extensions. the US is seeing closed reactors
restart. They're got they've got
production tax credits. They're getting these deals with
the major tech companies like Amazon and Microsoft.
It's enormous. The Koreans are back to building
reactors. The Russians are building a lot
of reactors. That's not again, it's Russia,
but that's going to take Eastern pounds and send them east just
every the UK, everywhere you look there is a rejuvenation of
nuclear interest and demand. And you know, it's not what was
basically no demand to barely any, maybe not even 1% is now 4
times that amount. And then you've got which we
don't even include is the small modular reactor demand.
You've got secondary demand, which is one of the things that
we didn't touch on. But this industry as I
mentioned, was driven by long term contracts.
In periods of excess supply like occurred after Fukushima when 54
reactors went off the grid, you had a backup.
The utilities would only contract at about 30, three,
3537% of their annual needs. So they would burn fuel in a
reactor and then only contract for 1/3 of that roughly.
And they did that last cycle too.
And they did that last cycle from like 92 to O4.
They burned 3435%. And then all of a sudden when
they decided to go back into the market again because they were
complacent and again, because they just, it's just how they
operate. They, they go to extremes and
they wound up purchasing some years 120 a 130% and more of
annual requirements. And so when you look at that
here, you Fast forward to since Fukushima through 2022, what
were they doing? They were buying about 36 to 37%
of their annual demand, replacing it with contracts.
Again, they've under contracted. So there's going to be secondary
demand. So we look at this new demand
coming from all of these major countries that heretofore had
been turning negative are now doing a 180.
You've got SMR demand coming, you've got extensions coming,
you've got up rates, which a lot of people don't talk about where
the nuclear power plant will increase the productivity.
They spend money to increase the output of the plant and that can
be very meaningful. That is not in people's numbers.
And so when we look at that demand profile now, the thing we
haven't seen because the utilities have been so slow to
react to cover all of their future uranium needs.
And Bill, if you think about any mining that build a copper mine,
to build any mine, it could take decades from discovery, from the
exploration to discovery to permitting the licensing, the
building and financing and all that stuff.
And uranium is no different. Nuclear uranium mines take
decades in many cases. And so in mining world, seven
years, five years is tomorrow. And so in the case of uranium,
when you look just out to 2030, we could look to 20402050, who
knows, right. A lot can happen in there.
But let me just look out 6-7 years from now depending on a
few different variables. But anywhere from 20 to 25% of
the supply that is needed for the demand in that year 2030
doesn't yet exist in the form of a mine.
So there are identified projects, they're going through
the licensing and permitting phase, but they're not mines and
building stuff happens all the time.
And so when you look at that, it's very, very significant as
to what's out there that needs to be built.
Another 5 to 8% can come from existing projects that are on
care and maintenance. So you've not because it because
the utilities we're still disbelieving they haven't
committed enough long term pounds under contract.
If we did go 2040, it's the number that's in my head.
I think the number is about 2.2 to £2.4 billion and again
roughly by our math today 210, twenty £30 million per year of
consumption, but there's over £2 billion it's not contracted for.
So those are called uncovered requirements.
So the utilities are facing a significant delivery waterfall
expiry. So all the old contracts they
signed are starting to fall off a Cliff right now into a period
where they need to start contracting for a demand profile
they as a cohort globally did not anticipate.
Normally in these cycles, you don't see demand moving that
much. So they may have been slow in
the last cycle. In the last cycle they were
contracting at at 3435% from 92 to O four.
And then they went up to 110. Twenty, 30% of annual needs and
they contracted for because inventories were down.
But that demand profile then was not gangbusters.
It was meh, low single digits. Now all of a sudden they've had
the same complacency except there at in the last cycle.
By the way I should add when the contracting started in mass in
O5, when you looked out to the future over a six year period,
there was a couple £100 million of surplus in the market and
when they started contracting prices went parabolic.
Fast forward to today, even by the industry forecasters who we
vehemently disagree with and think they're dramatically
understating their real supply demand numbers just because
their own analytics not for any other purpose they would they
show deficits. And so when we look at you
asked, even after the price move, do I still feel I feel the
asymmetry is is as good, if not better likely, but because.
The demand side of the equation has moved up so much and these
are once these things get in motion, they stay in motion.
Once once things are in construction, they stay in
construction. So yeah, it does.
It feels good. Now, that doesn't mean they're
with it though, Like I said, brings more interest, brings
more people who bring their own investing playbook to it.
And when they're coming in and you've got big funds coming in
with large amounts of capital and that they think they're
looking at copper or gold. And, and again, remember, a lot
of at least Western US, I'll say investors, they don't look at
commodities almost ever, right? But now they see this commodity
is working and they're coming into it it and they look at it
like they, they treat it like their tech data, like their data
points looking at a tech company.
And you know, we hear what's important to them and we just
think that, you know that that's not the play.
And so, so there will be some increased volatility with it.
But when I I look at the amount of uncovered requirements, those
that are not contracted for, I look at the precarious nature of
mine supply one here's another point Bill is 65% of all pounds
of uranium produced are produced in the East and almost 70% of
pounds consumed or consumed in the West.
And in that, one of the things that the people have brought
with their assumptions is that Kazakhstan, they produce 41% of
global uranium and they're 20% owned by the public and that was
floated in 2019. The rest is owned by the state,
by the sovereign wealth fund. And everyone assumes that
Khazaram Prom, which is the name of the company, when they came
public their pat, their cost to produce a pound of uranium was
something like $14.00 per pound on an all in sustaining cost
basis. So cash cost plus other expenses
to run the company and other items about 14 bucks a pound.
And and you recall I said earlier, the average cost to
produce is in the mid 50s. So, so the prevailing wisdom
would be, well, the Kozaks are the low cost producer.
They could just pound supply into the market and they're the
largest producer and they're just a spigot that's always
going to get turned on. And those are what all the real
sharp folks who go to idea dinners, we'll talk about.
We hear that all the time and I tell the sharp folks they should
go back and sharpen their pencils a little bit because if
you actually did the work on Cazada Prom, what you would see
is that the state owned producer in Kazakhstan does produce a lot
of uranium. They also cost in tangay and
they sell in dollars. And so in around 20/12/2013 time
period, the tangay was in the 75 to 85 tangay to the dollar
range. They devalued the currency and
let it float against the dollar. And so by the time And so when
if you were to look back back then before the company was
public, they had debt. And so they did have annual
reports and if you were studying like we did in in 16 and 17,
went back and found those. One of the things we noticed is
wow producing in the high 20s and mid 30s and then all of a
sudden as you start to get to the devaluation and the 10 gig
goes from 75 to 8010 gig to 300 and 4010 gig.
All of a sudden you start to realize that hey, wait a second,
this is really an FX play to an extent yes, they produce thing
yes, produce a lot of uranium. So now you Fast forward to so,
so that that could they produce? Yeah, Well, in 2017 they were
the first to cut production and they said, well, we're cutting
production. We don't like the prices and we
we're taking a value over volume strategy, which would be a
departure from Eastern philosophy, right?
The Russians just pounded out there.
And so that was a departure. So they were disciplined in 18
and 19. And in Kazakhstan they produce
under what's called subsoil use agreements.
Those are agreements between the entity, the minor and the state
as to how much you can produce and you to produce plus or minus
those agreed upon numbers, 20%. And if you go on either side of
that, you have to go back to the state and ask for approval.
So in 2018 they cut, 2017, they cut production 20%, 2018 20%,
2019 20%. Then COVID came along and it's
been 20% below. And everyone keeps saying, well,
they're going to turn the spigots on.
They're going to turn the spigots on.
And when they do, here comes a flood of uranium.
And our view has been actually, no, no, actually the Kazakh
uranium is challenged. It's a vast reserve.
There's significant reserves. A lot of it was mined.
They came out of nowhere in in 2000, in 2005.
If you look forward in 2015, they were supposed to go from
9,000,000 lbs of production to £21 million.
By the time you got to 2015, they were producing £56 million.
That's in the ballpark of what they produce today.
And a lot of as most miners do, they take the good stuff first,
right? And they leave the harder stuff
behind. But as we've gone forward, the
the reason you see a lot of this discipline, they have a hard
time getting supply. They have a lot of getting acid
to do it. They're having a mere host of
issues or not to mention that Russia is in their backyard and
puts pressure on them as to where supply is going to go.
But when they just recently gave guidance for 2025, production is
down 17% versus the subsoil use agreement.
And people thought that that would start to get closer.
But what you really see is the cost to produce a pound of
uranium is now around going to be guided to $28.00 a pound.
So when they came public, their costs were mid teens and they
were if you looked at what they were projecting out by
2024-2025, they were low teens. Well they're not low teens.
They're guiding to $28.00 a pound.
And if you currency adjust, because the tenge has gone from
3:40 when they came public in 2019 to 480 now, that's really
like 38 bucks a pound. And so rule of thumb, heuristic
investor, institutional investor.
Well, the Kazakhs are their state owned producer, largest in
the world. They're just going to keep
sending low cost pounds. Reality of those pounds are 2
1/2 times what they thought they would cost.
It's more expensive to produce. They're not producing as much.
And with these geopolitical winds, you're seeing a lot of
without getting into great detail, you're seeing a lot of
the influence, the Russian influence in Kazakhstan move
that those pounds very likely to head east, not West and the West
and, and, and some of the western utilities need it.
So that's another factor that's out there that's hanging over
the market. And I'm not sure that that as as
odd as it may sound, I'm not sure that's fully appreciated.
That's interesting. I mean.
When I think back to what you were talking about, when you've
got the potential, I guess the narrative in the market was the
overhang from Russia using some of their nukes to to what
unenrich D enrich. How do I how do I don't know
what it is, but they were basically like using surplus
uranium from the nukes and there was just a lot of I mean, when I
thought about it, I just said this.
This would like require truly dedicating my life to getting
through the opacity here. Well, so they did, and it sounds
like it's true it. Remains true.
Yeah, it's a good point. The opacity is still there.
As to to that nukes thing that's called a megatons to megawatts
intro from after the wall fell in Berlin and Russia and USSR
went away, the US was concerned that a lot of those nuclear
warheads would wind up in in bad actors hands.
So they had an agreement now in from 93 to 2013 to down blend a
number of 1600 nuclear reactors. Take the highly enriched
uranium, which is a nuclear warhead and and down blend it to
low enriched, which is what you use for reactors. 1 is 90% for
bombs and the other is 3 to 5% for reactors and take that and
it's a very expensive and complicated process to down
blend it and then you could use it.
And that was a way the Americans could pay the Russians to not be
bad actor, to not send, to sell it to bad actors.
And that existed. And that created an additional
£20 million of supply into the market.
Now again, for context, at that time, during that time period,
you were probably looking at £170 million of demand into the
US. It was 50, so the US lot of
incremental pounds. Exactly.
And and that's gone away now. And the opportunity might exist
down the road for some warheads to be used for these new
advanced reactors. If there's a shortage of low
enriched capacity, they might be able to to use it.
But you're talking to a miniscule amount which would be
wanted for those SMRS which is a mid twenty 30s type thing down
the road. So that that's a good thing from
the potential for available demand, although it probably
would very unlikely happen because you can't, it would be
the availability. But it could it be out there,
Yeah. Could it help advance SMRS?
It it might be able to. We don't factor that in.
It could that would be a good thing.
But yeah, so there was a lot of the SMRS use, I should say the
SMRS use high, high assay enriched uranium.
So it's a 20% enrichment level versus the three to 4%
enrichment level. So you don't have to down blend
it as much. But the SMR?
How long does an SMR take to get sort of from?
Conception to implementation conception a long time decade.
A while, but in terms of the features to an SMR, and I am not
an expert on SMRS, but the big reactors in the West, big
reactors have been a problem because they're customized.
Every reactor is, even though it's a model, it's built on site
and so there's variability in the construction and delays and
cost overruns. It was the last big one in
Georgia. Yeah, exactly.
Yeah, and that thing was a mess, right?
From an overrun standpoint. For years and years and years.
And immense amount of billions overruns because they're each
one is custom. Well, the the SMRS are built in
a factory and so it makes it standardized and you can have
standardized supply chain. So interesting.
Yeah. So, so that is in the future
though we we put very, even though you could have that
demand, we in our modeling, we put very, very, very little
demand for it. So did the reason.
I find it intriguing and. And this is obviously no longer
like a secret because of what Microsoft just announced.
But I have been racking my brain to figure out how we can have
the forecasted energy demand usage of AI and also pursue a
green solution to energy. And the only answer in my head
has been nuclear because I just don't I unless I guess battery
storage just gets so much better but it just doesn't seem
possible to me. Exactly.
Nuclear is a very elegant. Existing simple it sounds it
sounds hot, but it's a simple solution right it's when you
look at it on us from a safety standpoint per terawatt hour
it's the safest in the world Well, you know what's wild Mike
is the the. Reaction to Fukushima.
And I mean, unless my research is wrong, which is it's very
possible, but I don't think that there was maybe like one or two
direct deaths attributable to the health consequences.
And like, didn't one person just recently die?
But like the the deaths were all related to the earthquake and
the tsunami, which was a tragedy.
But that's not a nuclear reactor issue.
That's a nature issue. Exactly.
Yes, that's exactly right. And it gets, I don't want to
trivialize the deaths of the people at the plant.
That's terrible for them. But yeah, so when you look at it
over the the the data over decades now, it is a very safe
form electricity generation. And I think the Microsoft deal
of like I said earlier in the beginning of all reactors, right
Three Mile Island, which has this stigma attached to it that
was operator error. And here they are bring the
plant pack online. So it's a really a nice ringing
endorsement from a major tech company.
I'll tell you as a as a person who.
Roots for capitalism. It was pretty nice to see that
headline too, because it would be there would be a beautiful
thing about the biggest tech companies in America solving the
green energy crisis through capitalism that is now come I
root for well. So it's a great .1 of the
things. That I've noticed with it's such
a great point with the fuel buyers is always waiting for the
government to come in in one way shape or another, always hoping
on all different for all different facets versus letting
the market solve it. And here I to to your point,
you're seeing the market solve like this with Amazon at the
Susquehanna and and then and this with the Microsoft three
mile Island. I mean, the just just
Constellation stock was up 20% on the news Friday.
The markets are telling them it's OK, go out and build more
reactors, go out and do these are good things to happen.
And so it's funny how the free market can solve for a lot of
things. It will be interesting to see
because that that's not how fuel buyers think.
Yeah, I don't. I don't know that it's how the
people in our government. Want to think either and that's
why I'm really rooting for it to be to be a real not, not what
bottom up solution and it would be, I'm rooting for it.
It would be awesome. So we'll see.
Have you? Changed your views on the
incremental power generation from renewables.
Now that it's something that you followed for six years or so, I
got to imagine that you're looking at a tangentially,
right? I think there's a great.
Role for it and I think there's a nice growth profile to it just
like similar like I think about I think about EVs right it seems
people like to frame debates it's all or nothing and those
are those rules of thumb right it's.
It's a lot easier to live that way than to have the nuance in
the conversation, like you look at platinum group metals.
Palladium and platinum catalyst for catalytic converters, right?
Well, the PGMS, the commodities been shot, the miners have been
shot. The people in the service,
there's some people who recycle it, their stocks have been shot
because EVs were going to save the day.
And then, well, now EV growth has gone from, I don't know, 50,
sixty, 70% down to 10%, whatever it might be.
Every day you see, it seems you see a new car company or truck
company saying they're going to slow down a little.
So then it right. That doesn't mean EVs are not
going to be there. They'll be there maybe a slower
pace and markets will adjust to that.
Same thing with wind and solar. I think they're, they serve a
really great purpose in certain parts of the world and I think
there will be a reasonable growth rate to it.
So, but again, they it's all for nothing.
It seems that people think. So we haven't gone down that
road from an investment standpoint.
Our focus is on on that portion of it has been uranium.
But it often like there's three sides to every story, right?
Your side, their side and the truth.
And it's, it seems like that's the way with these industries
that there's bulls and bears and the truth lies somewhere in
between. Yeah, the EV thing I think is
really interesting because the. Growth has slowed or or even
gone negative, but it's like, OK, well give me a large
purchase consumer discretionary funded by debt asset class that
has grown over the last two years like you can't find it
right, right. So you know how much of.
This is. Interest rates versus the more I
don't know it's, it's, it's going to be interesting to look
back 3-4 years and see what happened.
It is. That's why we've been just
sniffing just. Trying to explore the PGM side
of things it I see a lot of similarities to uranium in a
sense where you've got a a market that is, you know, you've
got the major producers in PGM's it's Russia and South Africa and
uranium. We've got Kazakhstan as a major
producer, but the Russians, it's one's one's persona non grata to
the West and South Africa is very challenged state to produce
in. So you got real price risk all
the time in there. You've got a technology where
people just assume that the ice engine is going away of the dodo
bird and so they just ready fire, aim and shoot anything
associated with that. Just like you had people thought
nuclear technology, nuclear power was going away of the dodo
bird just six years ago. And the truth is neither is
happening, right. As these EV platforms slow,
well, the ICE engines are hanging in there.
And so it's just finding that price where they can.
There's an economic incentive to produce and the companies can
bat. So there are similarities there.
And I So from that standpoint, we do sniff around the PGM
space. Yeah, more cyclicals.
Did did somebody hurt you when you were a child?
Pretty much I. Think I'll tell you what I know
the the secular stuff I find kind of boring.
So and I think, you know, it's a really good point you bring up
though, but I think investing you've got to do what your
personality is, right? And then what I learned early in
my career was being a contrarian for the sake of being a
contrarian is a way to get your head handed to you, right?
It's OK to question things, but you have to, you can't just be
contrarian. And so there's a lot of things
that over the years you look at and you say, you know what, I
could see where I might be right, but there's enough
evidence proving showing that I'm not it's time to move on.
And I look for that every day in nuclear and I can't find it.
What would you if you had parting advice?
To let's say younger analyst, I mean knowing what you know now
and stumbling upon this trade when you did and, and not even a
trade at this point like a true long term investment.
What would you tell people to go out and look for and seek?
I would look for industries. That are really down on their
luck that we're look at the I mean I look at my world is is
commodity and commodity linked equities.
But it could apply to any industry where something is down
seventy 8090% where you've had a lot of fail a lot of failure.
And the longer the, the longer that's existed, the, the better
the chances is that human element coming in the recency
biases which permeate all sides of the of the market.
So that's where I would look. And if you're a young analyst,
you will have access. If you're working at a fund,
you'll have access to the sell side research.
I would really try and stay away from that at first because it's
going to be biased. And you know, now I'm not
getting into agendas and all that, but you know, if you're an
analyst and you're recovering an industry that's been beaten up
for seven years, are you going to be the one that's going to
stick your neck out and pound the table to buy it?
Probably not. You might be, but that doesn't
really happen a lot and you tend to see the follow them follow a
career preservation right And that I I get that, but I well,
Mike going back to the to an earlier part in our.
Conversation. If they're talking to the
insiders in the industry and the people inside the industry are
convinced the industry is dying, you're not going to get a unique
view, 100% Bill. And that's what happens.
And so when what early on, when I would start talking to uranium
analysts, as I got to know that and started to form my views, I
got, I was met with this, not all, but some of them say you're
wasting your time. What are you doing?
And so it all comes down to when you're looking at commodity
linked type things. It's all 4th grade math, It's
supply and demand. None of this stuff is that
complicated. Uranium has some enrichment math
that you got to try and figure out.
It's a little more complicated, but that may I don't know
that's. You can figure it out.
So it's really looking for industries that have been beaten
up, where a lot of the companies have disappeared, where there's
a negative bias permeating it, and then trying to take a very
holistic view of supply and demand.
And it really just requires spending some time doing it,
right, finding your own sources, like for a week, went to the WNA
and downloaded the PRISM database and, and, and looking
at all the different reactors, trying to understand it takes
time. And if you're a young analyst,
you have to work for a firm that is willing to give you that
time, right? I often hear from younger
analysts or guys will work for me, say they're talking to
someone who's looking at uranium and the spot prices.
This is a good example. Spot prices down a couple of
bucks and my guy will get a call from someone at one of these
firms, say my boss says I got to be missing something.
Somebody knows something you don't, you know, it's like, OK,
well, that's not true. You might think that because but
this is an oil, right? This isn't a look that even that
I could make an argument, but it's not the case.
But there you just have to ignore the noise and you have to
be the firm that allows you to do that right, That has has
longer view cat longer term capital.
If you're in this for a quick trade, you're probably, it's not
the trade, it's not the investment, but it's it, it
really is. Let let your own research guide
your numbers and let those numbers guide your conviction.
When somebody tells us something about nuclear uranium that can
affect supplier demand. Well, I could plug and play it
into our model. And I really, I, I don't care
what the narrative is. I understand how the math works
and, and then we'll go from there.
I have to respect the narrative. Like I said earlier, it helps
inform maybe when I want how I want a position sometimes, but
just do your own work. I worked for a really, really
good hedge fund manager many years ago.
I won't mention his name here, but and one of his rules was
never underestimate the laziness of investors.
And right, just because you hear it doesn't mean it's so and so
just say do your own work. I like it.
Well, Mike, I. Appreciate you.
Coming on the program. I was reticent to dip my toe
into uranium because it has bubbled up into my feet a little
bit more. And whenever people kind of get
on a trade, I get a little bit nervous about it.
But I always told myself if Mike Alkin ever contacts me or
anything and wants to come on the show, he's the guy I'm doing
it with. Or that guy, John Quakes, John,
John and I have never actually chatted and, and I don't know,
like I said when you popped into my I don't know if you followed
me on Twitter or somehow like like something I was going
through it because I don't post anything.
And I checked Twitter every few weeks and I happened to go in
and I saw on my timeline something you had an interview
and I've seen you do things before and I've always loved
your work. And but I noticed in my thing, I
didn't follow you. I said, oh, let me follow.
So I because I don't know how. I I because I lost track of you.
Yeah, man. And then I was like, is this
really Mike Alkin? Is that you?
I said. Yeah.
And then that was that. But yeah, so that's great.
I'm glad we connected, as am I, as am I, and I I hope to.
The extent that this gets the word out on you and your firm, I
hope you get some good inbounds and I, I hope maybe some more
informed calls come in. And I, I appreciate you teaching
my, my listeners something. Is your podcast still up?
No, I haven't done that since 2019.
Yeah, I didn't know if it was still in the feed or something.
That's a good question. I don't know.
Yeah. People should listen to it, to
the. Extent your content is your
resume. Your resume is loud and clear on
this idea and I recommend you for it.
There's a bunch of stuff on YouTube.
We don't have a channel, but I've.
Done interviews and stuff like that?
Well, good deal. How can people get in touch with
you? I think if you go to Sachem
Cove. Dot com there's a way my I have
a business partner, Tim Rotola, who runs the that side of the
business. I don't go to the website, so I
don't know, but I think it's sachem.com.
Yeah, we'll, we'll drop it in the show notes and again.
Thanks for your time. It was a pleasure and I really
enjoyed it. Thanks so much.
All right. Mike, take care.
OK, bye.