Justin Huhn (03:14):

And when you have very high prices, it takes a very long time for the market to react to those higher prices. You can’t just bring production online like that to balance those price movements. So there’s been multiple swings in the course of history of nuclear and uranium mining, where the price just goes on. These extreme spikes and comes back down and stays way below the cost of production for years and years and years longer than anybody thinks it can. Uranium had a very strong bull market from about 2003, really from 2004 to about 2008, and where the price of uranium went from less than $10 a pound to $134 pound. And the actual marginal cost of production at that time was probably about $55 a pound. So it overshot significantly during that period of time, the equities for the publicly traded uranium mining companies went on an absolute moonshot who had companies go from pennies up to $10.

Justin Huhn (04:09):

You had pallet and go from literally at the bottom was about a penny and it went to $10. It’s 1,000 X, or 10,000% just huge, huge moves. There were a number of other companies, even the large caps returned 2025 X, which is absolutely monstrous. And a lot of investors made huge gains on that. So the history of the investing potential for that commodity was what interesting me at first, and from following the Fukushima nuclear disaster in Japan in March of 2011, the market was in a bear market for a very long period of time. Not only was it a negative hit to sentiment because of that event at Fukushima, but you also had a lot of reactors, all of the reactors in Japan, and about half of the reactors in Germany come offline over a relatively short period of time.

Justin Huhn (04:57):

And so you had about 10% of global demand just disappear while supply, as I mentioned earlier, just continued to pump into the market. You had Kazakhstan, which was an up and coming producer at the time that was ramping production very fast, going from the mid 2000s up until the mid 2000 teens just growing exponentially. It was a currency play because their currency, the tenge was pretty consistently being devalued against the US dollar. And they were a 100% state-run at the time. So they were just pumping it out, pumping out and producing crazy amounts of uranium while the sector was mired in kind of its negative sentiment and demand coming offline after Fukushima. So long story short, we had a brutal bear market. The equities got destroyed from that period of 2011 to about 2018 was when the commodity bottom… Excuse me, 2016, the commodity bottom at $18 a pound.

Justin Huhn (05:49):

But the equities, we went from almost 500 companies in 2008, down to about 15 companies, maybe 20 companies in the teens. And it started to ramp up from there. Now we have about 65 publicly traded companies, and the sector’s starting to rebound. And over that period of time that I’ve been watching the sector and interested in from an investing standpoint, there’s been a lot of developments that are pro-nuclear in terms of nuclear energy being now more and more classified as a green energy source. It produces zero carbon in its electricity production. And as environmentalists become increasingly alarmed about carbon emissions, nuclear starts to look a lot better than it did in the past. And so, we’re seeing kind of the environmental left to be supportive of nuclear, kind of for the first time really ever. We’re seeing bipartisan support in the United States, which is something very unique that the Democrats and Republicans agree on almost nothing. We’re seeing nuclear just now included in the EU taxonomy as a green energy source.

Justin Huhn (06:55):

That’s yet to be completely official, but it’s likely to go through and be enacted starting next year. And so there’s this growing positive sentiment around nuclear, and it is a growth industry. China is planning to build 150 new reactors in the next 14 years. It’s set to grow as an industry as a whole 2 to 3 percent per year for the next couple of decades. So it’s just as very interesting unique sector that is an energy play. It’s a commodities play. It’s a green energy play. It’s something that you can invest in, feel good about from an environmental standpoint. And the moves are very volatile in both directions, but when money comes into the space, as I mentioned, only 65 companies, and still now, it’s barely a full $40-billion industry as far as the publicly traded companies go. So when money really flows into the sector, the stocks move incredibly, incredibly hard to the upside. So that’s kind of the long and short of it, really.

Clay Finck (07:50):

You mentioned that China is planning on building 150 nuclear reactor plants. To give the audience some perspective, how many reactors are currently running in the world today, and maybe going to how much the US is investing in the space as well?

Justin Huhn (08:08):

Currently, running in the world right now, I don’t have the exact number off the top of my head, but it’s something around 450 reactors currently running. And with China in particular, they have, I believe it’s 51 gigawatts of nuclear currently, and their goal is 200 by 2035. So that would be about 150 reactors to meet that goal. They currently have 18 reactors under construction right now, and they have 50 something planned and a hundred and something proposed. So it looks like they’re shooting for that goal. And as of now, they are definitely enacting to meet that goal. How much is the US investing in nuclear? The US seems to be more interested now in what is referred to as advanced nuclear. So this is kind of like the next generation of nuclear energy. There are these nuclear reactors called small modular reactors or SMRs, and they are smaller, they’re modular.

Justin Huhn (09:03):

And they operate at a much lower capacity and using a higher enriched fuel that is much more efficient and much safer. These are essentially meltdown proof reactor designs. And because of their size, they can be implemented into smaller electricity grids. They’re not going to take 15 years and $20 billion to build. It’ll be 1 or 2 billion, and they can build them in two or three years and they can plug them into smaller grids. There’s already one set to be built in the state of Wyoming in place of a former coal plant. So literally just kind of plugging into the existing grid where coal print used to be. And one of the cool elements to some of these design is that they are working in the ability to cycle up and down more easily. So this is one of the drawbacks, I guess you could say about these large nuclear reactors is they’re slower to cycle up and down, and they have limited capacity in that cycling, maybe 10% to the upside or the downside in terms of producing more energy or retracting.

Justin Huhn (10:01):

So it’s more difficult for nuclear to coexist with renewables. We have renewables. So solar, during the day, is producing a ton of electricity, and at night produces zero. So you have to have without storage capacity, the ability for another electricity source to cycle down during the day and cycle up at night to balance that out, same thing when it’s windy or not windy, right. Some of these reactors like the natrium reactor, I believe which is the one that’s going to be installed in Wyoming has runs at, gosh, it’s 300 something megawatts in normal capacity, but it can store excess heat in the form of molten salt storage, and bring that heat back and utilize that to produce more.

Justin Huhn (10:40):

So it can ramp up, I think, as to 500 megawatts for something like five or six hours at a time. So it’s very cool. So then these new SMRs are much more viable to be worked into grids alongside renewables. So that’s pretty exciting. So the United States is not investing a lot in terms of new builds for large reactors. There’s two reactors currently under construction. That’ll probably be online in the next few years, but more of the interest and the money in the states is going towards this advanced nuclear.

Clay Finck (11:10):

Now, if investors wanted to go along on the uranium sector, how are they typically doing that specifically individual retail investors? Are they buying minors or are they buying some sort of uranium trust, or how are they going about that?

Justin Huhn (11:25):

A lot of that depends on the individual investor. Their own net worth, their age, their risk tolerance, etc., their goals for that invest. There’s high risk investments or there’s low risk investments within the space within a generally a high risk space. So the lowest risk would actually be buying something like the Sprott Physical Uranium Trust, which holds physical uranium and roughly tracks the cost of the commodity. So if you’re bullish on the commodities price upside, which at this point Sprott price is about $45 a pound. The marginal cost of production is probably closer to 65, 70 dollars a pound at this point with inflation and supply chain issues that we’re seeing globally. So there’s about a two X potential in the commodity to get to that level. Will it overshoot again? Probably. So safely, you’re probably looking at a two to three X, maybe a little bit more to invest in this trust, but the downside here from this level is very, very minimal.

Justin Huhn (12:21):

So risk adjusted is probably the safest bet in the space, would be owning the commodity. There’s also Yellow Cake, which is based in London. They also hold physically uranium. I would say the next less risky would be owning a basket of stocks, just literally owning an ETF. So there’s the URA and the URNM, ETFs both trade on the stock exchange. There’s HURA, which trades in the TSX, and there’s Geiger counter, which trades in London Stock Exchange, URNM is the only pure play in the states. It owns solely uranium stocks, and they’re about to be taken over by Sprott. And the Sprott Physical Uranium Trust is a holding in URNM, is one of URNM’s holdings. So that’s interesting. That’s going to be taken over later next month. And we think that that’s going to be a decent catalyst for the sector.

Justin Huhn (13:10):

Sprott is a marketing machine with a huge, huge reach in the resource sector. Not sure how familiar your audience is with Sprott, but they have what about 15 billion assets under management in terms of their physical trusts; gold, silver, cloud and palladium and uranium. And they’re just a monster in the space. So they’re running this fund, this physical trust, and they’re also taking over the largest pure play uranium ETF next month. So owning the ETF has just taken the shotgun approach and just buying a little bit of kind of everything just to have exposure to the sector. And then I would say that smaller retail investors like to gamble a little bit more, and invest more heavily in the companies they like, and the really risky minors, the small cap exploration stocks are always see the most risky because you’re gambling on whether or not they’ll actually hit and make a discovery during the bull market, which is unlikely for most companies, but possible.

Justin Huhn (14:04):

If a small cap explorer hits a big discovery during bull market, you could see absolutely insane returns, 50, 100 X at this point would even be possible for some of the companies that are trading near 5, 10, 20 million on or caps. Most of the exposure for our portfolio is in developers. These are companies that are a little bit de-risk in that they already have some proven out assets. They already have a discovery, they’re working towards turning that assets or multiple assets into actual producing uranium mines. And some of those companies can still see really big upside, but you remove a lot of that risk that you’re gambling on. I mean, it’s not a drill plane necessarily. And then the large caps that are already producing are probably the lowest risk amongst the individual miners. So the Cameco, Kazatomprom, there’s not that many producing companies right now. Ur-Energy is barely producing.

Justin Huhn (14:58):

And then most of the other producers are private companies, so Orano, which is a French company. They’re a huge player in the space. Uranium One. CGN is publicly traded. They’re a big producer. You can buy them on the Hong Kong Exchange. But yeah, it’s explorers, developer, producers, ETFs, and then the physical commodity trusts.

Clay Finck (15:15):

I see the Sprott Uranium Trust brought up a lot. Could you talk a little bit more about the role that Sprott plays in the overall uranium market, and the demand for the actual physical uranium.

Justin Huhn (15:28):

Sprott took over a vehicle called Uranium Participation Corporation that was established in 2005, and was established as a physical uranium fund to purchase uranium. And over the course of 2005 until last year, they accumulated 18 million pounds of uranium. And it was established simply as a investment vehicle for investors to have exposure to the commodity without actually having to buy a miner. So if you just want to place a bet on your… because uranium doesn’t have a futures market. It’s like you can trade futures like oil and gas, or oil and silver, etc. So to have exposure to the commodity without buying the actual miners, that’s why this was created. And like I said, they accumulated 18 million pounds coming to last year. Sprott was working on taking them over for about three years. That’s how long they were working on this deal. And then nobody knew about it. I mean, nobody. I have a lot of really connected contacts in the sector.

Justin Huhn (16:22):

And that surprised everybody when we heard about that. They announced it in April of last year, was like, “Oh, damn. Okay. This is happening.” We knew it was a huge deal. The biggest piece of news to hit the uranium space since I’ve been following in 2016. So they took it over. They did a couple of things immediately. They were really smart. They did an immediate share consolidation, a reverse split to raise the price of the actual stock in order to open it up to more investments. There’s some institutions that can’t touch a stock if it’s under $3 for example, or whatever the price might be. And so just doing a reverse book raised the price, lower the number of outstanding shares, no brainer. Immediately, that opened them up to other investors that couldn’t touch it before. I don’t know why UPC never did that.

Justin Huhn (17:04):

The second thing they did, which is more important, was they establish an after the market financing vehicle also as ATM. What that allows is, it allows them to issue shares into the open market at will. So most of the time when a company in the resource space raises money, they do so through a private placement or a broker deal, or they actually issue shares and oftentimes warrants to individual investors or institutions in exchange for cash. And in this way, stock can just issue shares into the open market at any given time. And of course, they’re only doing that when they’re at a 1% premium to the net asset value or so. It take the total value of all the uranium they’re holding plus their cash and measure that relative against the price of the stock, essentially is what they’re doing. And they get a 1% management fee whenever they buy uranium. So they at least have a 1% premium to now they’re issuing shares in the market up to 50, 60 percent of total trading volume on any given day, if they’re at that premium to now.

Justin Huhn (18:04):

And they’ve already done over a billion dollars since August through this ATM. They have up to three and a half billion already allocated. They very likely have raised… well, there’s still two hours left in the day. Today, we saw actual record trading volume in that trust. So it’s really important to understand that the Sprott Physical Uranium Trust is a buy-only trust. They’re not trading uranium. The uranium that they purchase, they will hold forever. So they’re essentially an end-user of uranium that’s driven by the financials, that’s driven by the financial interests. When they’re trading out a premium to nav, if you go and buy shares, half of the shares that you’re buying in the open market, you’re buying them directly from Sprott, and they’re raising money by issuing those shares to buy physical uranium in the spot market. And the spot market is any uranium trade that happens with less than 12 months delivery, or less than 12 months to close that deal.

Justin Huhn (19:02):

So when they’re buying in the market, they’re buying in short timeframes. They’re wanting delivery within a month or two. And that’s why you see such dramatic changes in the price when Sprott is actually in the market.

Clay Finck (19:13):

Very interesting. Now, when I was doing my research on the uranium market, I was reading that the nuclear reactors over the past few years have been buying less uranium than they actually use, which means whatever reserves they have are slowly being depleted. Why haven’t the nuclear reactors been buying more than they consume, while the uranium prices are relatively low? Surely, they know the market as well as anyone.

Justin Huhn (19:39):

This is the classic question for anybody that comes with space is like, “Well, the prices are lower than the average cost of production, so why aren’t they just loading the boat now?” The environment of that oversupply the last decade really created this, I don’t want to say false sense of security because it really was a real sense of security for the utilities. They could go at any given time, out of the market and buy from whether it was Kazatomprom of Uranium One that was producing really cheaply out of Kazakhstan, or from something called a carry trader. A carry trader is essentially a trader that would sign a delivery contract with a utility, and then they would go out and source the pounds from the spot market. They would carry it on their books. They would add their cost of capital, add their storage costs for holding uranium or whatever facility they’re holding it at, and add their own little bit of profit in there.

Justin Huhn (20:30):

And the utilities could buy these carry trade pounds so easily, so abundantly, and so cheaply for so long. There’s no real incentive for a fuel buyer at a nuclear utility to take the risk and voluntarily come forward and say, “Okay, Hey, Cameco. I know you want $45 a pound to open [inaudible 00:20:50] river back up, but I can just go to this carry trader right here for 20 bucks a pound. So I’m not going to do that.” And it hurt the producers for a very long time. Why didn’t they load their inventories? Because they’ve had this abundant uranium available for as long as they can remember, essentially. The European utilities are a bit more covered. They have to hold a minimum of three years inventory. The United States utilities are closer to around that two year mark.

Justin Huhn (21:14):

So historically, a little bit on the low side, but it’s not like the utilities are in dire straits yet. They just aren’t. The story that’s happening now is based on looking at the mid to long term market. So let’s say 2025 to 2030 and beyond for utilities. And then looking at the immediate situation with an extremely thin spot market and potentially massive financial demand. And I just realized, I didn’t ask part of your previous question, which so Sprott purchased, I think it’s 23 and a half million pounds. And they did that in less than four months of last year. So purchased more in four months than uranium participation purchased in 15 years.

Clay Finck (21:53):

There’s been a lot of talk about nuclear being a reliable, clean energy source. And you mentioned this earlier, and I’m definitely no expert on green energy. I’m curious, what has kept the nuclear energy sector from becoming a primary source of energy in the US, or in other developed countries, and how might that change in the future?

Justin Huhn (22:14):

I mean, it still is a really important and primary source of energy in the US. Still, it’s about 20% of the grid here. And that’s based on the massive buildouts that were done in the 70s and 80s. The pace of buildouts substantially slowed 90s and 2000s in the United States, and the primary reason for that has to do with cost. So it’s so much faster and so much cheaper to build a coal plant or a natural gas plant, or even to establish a field of solar panels and put up a wind farm, whatever it might be. So it’s cost. It’s regulation. In the United States, there’s massive, massive bureaucratic red tape. You’re dealing with hundreds and hundreds if not thousands of union workers. It’s just very, very expensive, where a country like China is building these reactors called the wall long reactors. And these reactors are… they can just do one after the other exact same design, just cut through the red tape there is just so, so much less than what we have here.

Justin Huhn (23:11):

So that’s what’s kept it from happening primarily in the United States. There’s also been a decent amount of negative sentiment that has been built up in the west in general. And a lot of that has to do with not only with Fukushima, or in the States prior to that, would be a three mile island, which actually that was a meltdown, but it was contained. And actually didn’t even spew radiation or hurt anybody. Neither did Fukushima by the way. There’s zero deaths from Fukushima. A lot of deaths, unfortunately from the evacuation and from the Tsunami, of course, but that meltdown at Fukushima had no deaths associated with it. Most people don’t know that. But there’s also been a concerted campaign from the fossil fuel companies to give nuclear a bad name. And the reason is, whenever a nuclear plant shuts down, fossil fuel picks up pieces for the reasons I already described with renewables. Renewables are kind of the hot item and have been for the past decade.

Justin Huhn (24:01):

Everybody thinks it’s the next step to world peace and whatever it might be, and a carbon-free future. And renewables have their place, but we’ve seen what’s happened in Germany, for example. They’ve put $500 billion with a B, into solar and wind in their program called Energy Vendor. And what that is done is they shut down half the nuclear plans. They just shut down three more last week, by the way. And they went all out into wind and solar. And so 50% of their energy grid is wind and solar. What happened because of their shutdown of nuclear and because of their massive expansion intermittent energy sources is they’ve had to build more coal plants in order to buffer that intermittency in the grid and stabilize the grid. So they have some of the worst air quality in Europe. They have some of the highest energy prices in Europe, and it’s been an energy nightmare for the Germans really.

Justin Huhn (24:53):

And it’s just insane that they’re closing down their last nuclear reactors. It’s just totally crazy. So that’s kind of the long-winded answer to say that sentiment has been poor. There’s concern over nuclear waste from people that don’t understand it very well. Nuclear waste really, there isn’t a great solution for it still. There’s no agreed upon location in the United States where to store it. Other countries have figured out some pretty ingenious storage situations like Finland have this series of underground tunnels that go deep underground. And the waste is already held in a large cast with very thick walls of concrete and steel. And then that cast is brought underground, and it’s buried in clay and then cemented over. And it’s however many hundreds of meters underground. So it stays very active for a very long time, but it’s stored safely.

Justin Huhn (25:44):

It’s literally the only waste product from an energy source. That’s extremely highly regulated. So if you imagine the waste product from a natural gas plant is in your lungs, and in my lungs, and in the ocean, and from the coal plant, same thing. More people die in a single day from coal production from coal energy production than have died in the history of nuclear. So it’s actually the safest form of energy that’s ever been produced. It’s safer than solar in terms of deaths per kilowatt hour produced, it’s safer than everything.

Clay Finck (26:15):

I’m curious, nuclear reactors in the US, what do they currently do with all of the waste?

Justin Huhn (26:21):

It’s stored at each individual facility at each power plant in theses casts.

Clay Finck (26:26):

And to your point about Germany, has there been any pushback from the people or from politicians to try and turn on these reactors again to try and bring the cost of energy back down?

Justin Huhn (26:37):

There’s definitely been a positive shift in sentiment amongst the populace. It’s been very difficult for politicians to reverse course, that’s not just Germany. That’s anywhere. Politicians don’t seem to be able to apologize or say that they were wrong. That’s pretty much an impossibility. The incoming chancellor seems to be indifferent about nuclear rather than anti, who was Angela Merkel’s decision to close down the reactors after Fukushima, and to phase out nuclear, which the populous at the time was fully in support or mostly in support. And now with this energy crisis and the fact that they’re so beholden to Russia’s natural gas imports, and Russia is like it’s got their hand on the tap, like doing this letting a little bit in a little bit less, little bit more, just total control. And so the people in Germany are less pleased with the phase out than they were in the past. And there’s certainly been a movement to try to save the remaining. There’s three left. There are three left in the country that are set to be turned offline this year.

Clay Finck (27:37):

For those that are critics of nuclear energy, are there any other drawbacks or points that you haven’t mentioned yet?

Justin Huhn (27:45):

It’s expensive and time consuming to build the plants. That’s the biggest drawback in most countries. There’s huge, huge sun costs to get a reactor up and running. Once it is up and running, they can run for… Some of the reactors in the states have been given life extensions to 80 years. And some of those reactors are expected to get another extension potentially out to 100 years. So there’s been a lot of safety protocols. That was one of the good things about Fukushima is the actors that did stay online. Most countries that had nuclear power kind of reassessed and made sure their safety protocols were in place. But I would say that’s probably the biggest downside is the sun cost and the time that it takes.

Justin Huhn (28:22):

I mean, the nuclear waste is not a great thing. It’s not a bonus, but it’s not as harmful as most people think. It’s very highly regulated, and there hasn’t been an accident with the waste. And so, I’m not one of those people that thinks that there’s a perfect solution out there. I really don’t. I mean, everything is a compromise. And I think that having my [inaudible 00:28:42] over any particular issue or any particular perceived solution is typically not a good idea. I think that it’s not an all or nothing situation. I think that nuclear has its place in an energy grid. And where’s the conversation about energy conservation? That seemed to have disappeared in the last 10 years. It’s like, everybody’s excited about electric vehicles, electric everything, that all we’re talking about is electrifying the planet. Nobody’s talking about energy conservation anymore. I literally haven’t had that conversation in five years with anybody that I’ve talked to. So if we’re not talking about that, then you can’t just come out and say, “Let’s electrify everything. Oh, we’re all going to die in 10 years because of carbon. Oh, nuclear bad.”

Justin Huhn (29:25):

You can’t have all of those things. You have to compromise somewhere. So I think that the downsides to nuclear, all things considered are acceptable. And I think that it is a very good source of clean and baseload energy that could… I mean, should… I mean, you could have nuclear desalinating in areas that are stricken by drought into reforest deserted areas. So many huge potential issues that could be helped with the implementation of nuclear and the small modular react thing is really exciting. There’s dozens of very, very cool designs that are essentially meltdown-proof. Some of them are even working on technology to actually recycle the waste. There is some technology currently for waste recycling, but French are doing it a little bit with something called mock fuel where they actually take nuclear waste and recycle. It’s very expensive to do so, it’s why everybody doesn’t do it.

Justin Huhn (30:18):

But it, like everything else, is a compromise. And I think that all things considered, it’s a pretty good solution. If we’re talking about a future where energy is going to be in increasing demand, which it does seem like that’s what we’re talking about. It’s not necessarily what I’m advocating for, but that seems to be the situation. So I think it’s a good solution with all of that considered,

Clay Finck (30:40):

Due to the economics of how these nuclear reactors are built, is that the reason why most of them are state-run?

Justin Huhn (30:47):

Well, there’s plenty of private nuclear utilities in the States and in a number of other countries as well. But a lot of them are state-run. And so, yeah, that has a lot to do with it. Plus just the energy security element of it. Rather not bringing in the vicissitude of capitalism to the security of the energy grid, let’s say. So that can be a problem in the States sometimes, when natural is really cheap and a reactor is kind right on the edge of profitability and it to compete in the energy market in the States. That can cause financial problems for some of utilities.

Clay Finck (31:22):

Recently, we’ve seen some protesting and riots going on in Kazakhstan. Could you expand on how that might affect the global energy markets and the uranium market?

Justin Huhn (31:34):

I mean, it’s hard to tell right now cause it’s so fresh. Protest started a few days ago based on the removal of a cap on gasoline prices. The government removed a price out gasoline and people started to protest. It seemed like the government pretty quickly reversed course and said, “Okay, okay. We’ll put the cap back.” And the people are already in protest mode and they’re full-on rioting. It seems like they’re trying to overthrow the government at this point. The president of Kazakhstan has already basically canned his entire cabinet, and is saying, “Yeah, I’m not going anywhere, and we’re going to do everything we can to quell these protests.” They’ve shut off the internet across the entire country, which, I was reading an article about it today. And that was just kind of a passing line. “Oh, there’s been a nationwide internet shut down,” and thought about that for a second.

Justin Huhn (32:17):

Imagine that here, that’s a really, really debilitating, huge deal. And I don’t know how long that that’s going to last. I mean, that affects people’s survival at this point. It looks pretty unstable. The rioters have captured the airport, the international airport. They’ve burned down government buildings, and it doesn’t look good. And so the Kremlin out of Russia is already basically warning other countries to stay out, don’t come in and try to fix this situation. So I think Kazatomprom, which is the majority state-owned, but it’s 25% publicly traded now. It lists on the London Stock Exchange under the ticker KAP. They’re the biggest producer in the world. About half of their production goes to China. They have joint ventures with a number of other companies, and they’re a huge player in the space. And they’ve been a reliable producer for almost two decades.

Justin Huhn (33:06):

I don’t really see yet that this will necessarily impact supplies. I don’t think that they will ever default on their delivery requirements and their delivery contracts. That’s highly unlikely to happen. But I think what it’s doing currently is it’s just highlighting the risks of having such a reliance on a single source for something so crucial as uranium for energy. And so utilities that have relied upon this one source, because they produce over 40% of the global uranium production. It’s just huge. Any interruption that might come to that even short term is a big deal to the market. So I think that that’s what the market’s reacting to today in some ways. And I think more than a reaction to that is that was kind of the trigger for money that was on the sidelines to come back and [inaudible 00:33:55] because we had a 30% pullback over the mid-November through the end of the year. So there’s a lot of kind of late retail money got washed out, and there’s a lot of institutional money and it’s fresh in January. All right, we’ve got our new whole year ahead of us. We’re ready to allocate into this thing. Then this comes along. It’s kind of that trigger.

Clay Finck (34:13):

Could you talk to our audience a little bit about the cyclicality of uranium as a commodity, and where we might be at in this current bull cycle?

Justin Huhn (34:22):

It is typically a very cyclical commodity. I mean, all commodities really are cyclical. They go through those boom and bust cycles. Like I mentioned in the commodities that can react faster to a pricing environment are the ones that have a smaller cycles usually, which is why the uranium cycles are so huge. So like oil and gas, while seemingly can respond faster, gold and silver to some extent, although that’s a highly manipulated market, but these commodities markets, where you have a very, very slow timeframe to respond to prices, you have huge cycles. So the cycle that went peaked in 2007, at $134 a pound fell pretty sharply from there, and starting to recover and then Fukushima in 2011, then it fell practically in a straight line from about $70 a pound down to $18 a pound in 2016. So the commodity bottom was 2016, late 2016, like $18 a pound.

Justin Huhn (35:17):

The equities bottom was March, 2020. So when we had just kind of the COVID crash is when the equities bottom, most equities bottomed then. Some of the equities bottomed with the commodity, some of the stronger companies, I would say, kind of bottomed with the commodity and recovered with the commodity and held up better in that March 2020 crash. But that was roughly the equities bottom. We had a pretty decent recovery in the equities from March, 2020 for about a six month period after that, then it kind of leveled off. Spot price stopped moving. The spot price really was moving because Cameco was buying in market on short delivery because they had to shut their cigar lake mone. And so when they closed that mine, they started buying in the market.

Justin Huhn (35:56):

So not only do you have pounds not coming into the market because the mine was closed, but they were coming out of the market faster because this producer became a buyer in a greater capacity than they already were. So the spot price moved pretty sharply, March, 2020 for a few months, equities moved pretty sharply. Sentiment was there, but it was kind of like, “Oh, maybe this is the COVID thing. Who knows when the market’s going to move again.” In December of last… not last year. 2020, so 13 months ago, huge volumes came into the space seemingly out of nowhere. And we had a prominent newsletter writer, Larry McDonald. He writes something called the bear traps report goes out to a pretty large institutional membership. He did an article on uranium citing this commodity that’s unloved and the equities are way undervalued. It’s an energy play. And we believe that it’s going to be increasingly accepted as green energy. Therefore, ESG funds by environmental social governance funds like actual investment funds that can only invest in companies that fall into that category of responsible management, let’s say in one of those ways.

Justin Huhn (37:03):

So part of the thesis was uranium would eventually be in ESG play. So a lot of money came in in December 2020. Spot price didn’t really move then. It moved up maybe a couple of dollars, but the equities went on a moonshot from December to about June. And part of that was the April news of last year Sprott taking over UPC. So as soon as that happened, then that was kind of this sequestering of aboveground mobile inventory in the spot market, which we believe Sprott has worked through most of whatever was remaining from the previous decades over supply. So that’s a long-winded answer to say that we’re not at the very bottom. We’re probably in maybe the third inning, probably the second or third inning here.

Justin Huhn (37:45):

If you look at a chart of the previous run, you can really see. And this is the case in most bull markets for most commodities or most stocks even is that the really euphoric moves happen in [inaudible 00:37:55]. And so what we know, we know uranium has to go to the marginal cost of production because there’s a severe supply shortage, 2025, 2030 and beyond. And I know it’s like, “Well that’s four years.” No, that’s like tomorrow in the uranium world, these mines take forever to come online. So this stuff has to happen. Now the prices need to move soon to incentivize these projects to avoid a supply situation five plus years out. So we know the price has to go at least to that 70, 80 dollar pound mark. We know that the spot market essentially now has been effectively cornered by the financials, and what are the financials going to do?

Justin Huhn (38:35):

They know they’ve got the market cornered. They know that money going into this spot physically moves the price of the commodity, which, therefore, moves the equities. So what do we do? What do they do? Buy a big chunk of the ETF, and come in and buy a big chunk of the physical trust and win some repeat. And so I think that things look extremely bright and that’s part of the cyclicality. Typically, there’s some annual cyclicality like a seasonal element to uranium as well. It doesn’t play out every year.

Justin Huhn (39:06):

It’s sort of played out this year. We had a strong October and first half of November, and then it pulled back and erased a lot of those gains. Now it’s running again. So typically, we have about early to mid October through about February is usually a strong scene uranium, most years. And that obviously seen an average [inaudible 00:39:22] plus 20 years, but it’s not something you can set your watch to. But the overall cycle is really boom and bust. And the bust distort most companies and takes way longer than it should. And the boom goes way, way higher and oftentimes way faster than it should. So the price doesn’t need to go to 150, 200 dollars a pound, but it very well could cause it’s not being driven by a fast moving supply deficit, responsive market. That’s being driven by financial [inaudible 00:39:52].

Clay Finck (39:52):

Yeah. Like mini markets, it overshoots to the upside and undershoots to the downside. I mean, we talk about that with the stock market all the time, which is something our show is really focused on. Now, due to the cyclicality of uranium, I’m assuming that at some point, you’ll either sell or trim your position. What are some of the telltale signs you’ll be looking for when it’s time to potentially take money off the table?

Justin Huhn (40:18):

For sure, yeah. It’s not something you want to just close your eyes for 10 years on. It’s not blue chip dividend paying stock that you want to give to your grandchild. It’s something you’re going to want to get out at some point, and likely because of that overshoot. So some of those signs would be any entity that is purchased physically reigning that’s not Sprott because they’re buying hold fund trust. Sells uranium back into the market. So there’s other hedge funds that have purchased uranium. There’s producers and developers that have purchased uranium that are just holding physically uranium. So if we see some of those entities start to sell pound in the market, that’s one sign that they think that maybe it’s nearing a peak. That was a big sign in the previous market because UPC and some of these other hedge funds that were selling that were holding uranium, did sell back in the market.

Justin Huhn (41:03):

And it was more of a visible thing. That’s going to be a harder thing to watch this market. One of the other signs would be a very sharp and prolonged overshoot of the Sprott price above the term price. Typically, the long term price is higher than the spot price because of the cost of the future unknowns between the time and the contract assigned and the uranium is delivered. The term price is… Well, it’s technically the official price of uranium for a time period of delivery beyond 12 months. But you have the price reporters, the uranium consultants will report on the price and they’ll actually have like a midterm and a long term term price, but there’s more of an official term price, which is $43 a pound, which right now is lower by $2 than the spot price as of today. But typically, the term price is more expensive than the spot price because you have interest rates, and you have potential unknowns between the time that that contract is signed and the uranium delivered.

Justin Huhn (41:58):

So in a roaring bull market, typically what happens is the spot price will kind of do this and cross above the term price and then run. So if and when it does that, and it gets really overshot, like if we have a term price at $75 a pound and this spot price on 150, that’s pretty unsustainable, and likely to reverse not necessarily tomorrow, but it’s something to keep your eye on. So seeing that overshoot is definitely going to be a signal to kind of at least be eyeing the exit door. And then of course, just kind of the classic technical analysis, watching volumes, moving averages, watching large volume selling in the ETFs and the large cap companies would be a sign of institutions bailing out. So that’s something to keep an eye on. Most of the corrections we’ve seen, at least in the past year, year and a half, have been increasing volume on the way up decreasing, volume on the way down, which is a typical bull market activity.

Justin Huhn (42:52):

So in that reverse, when you see a sell off of high volume and the dead cat balance or the recovery and low volume, that doesn’t bode well. Just things like that are really what we’re looking for. And then of course, there’s clues that we watch out for based on our connections in the industry and what we’re hearing that are harder to just kind of decipher and see out into the future at this point but there’s always whispers of goings on. So we try to stay plugged into that. And of course, keep our membership up to date with whatever we’re hearing on upfront.

Clay Finck (43:25):

I’m curious, how do you think about the macro economy in relation to your uranium trade in? Maybe touch on what the overall market looked like during the March of 2020, deflationary shock we saw?

Justin Huhn (43:37):

Well, I think in that particular shock, everything, it was a liquidity crisis. So everything got whacked. That was a very unique, unknown situation that was driven by mainstream media, just care mongering, a level that nobody’s ever seen. So I think that that was a unique shock in that nothing is safe, and it’s in a true liquidity crisis. I think that a lot of lessons were learned in that particular market. I think that one of those lessons is the willingness of the fed to do just about anything to support the broad market. I think that it showed the resiliency of the market in general and that even something as scary and as shocking as that particular crash was, it was the ultimate buy the dip situation. You had negative oil prices. You had silver down under $10 an ounce. God, I mean, that was the buy everything moment of my adult life, I would say.

Justin Huhn (44:32):

And so I think that that was a lesson learned there was that the fed will basically do anything to keep things popped up at this point. They’re talking about interest rate raises, I don’t think they can raise rates very much before drastically affecting the market. So they’re kind of caught between the rock and a hard place. We have certain analysts pendents talking about a 60 to 80 percent crash coming. I just like… the only way I see something like that happening is if there’s an absolute unforeseen, like a nuclear war is coming or something like that, God forbid. But that’s something that you can’t predict, and it’s something you can’t really prepare for. How do you hedge for a market crash in a market that doesn’t stop going up? It’s like, you’re going to just keep buying put? Go out and try to buy a three year long dated put on the S&P right now. Premiums are absolutely astronomical.

Justin Huhn (45:18):

And you’re going to have to take a huge chunk of your portfolio and risk that position in order for it to pay off if things do turn. So in my opinion, the best hedge for a broad market situation is cash. I think that it’s a fools game to continue to short the market. The people have calling the top and the S&P for the last five years. It’s just a pointless conversation. I think that if you have a good run in your investments and you’re way, way, way up, and you think something looming, just off the table and sit in certain [inaudible 00:45:49]. That’s what we plan do. As far as the uranium market goes, I think that we should see a good leg here in the short term, judging by the volumes we were seeing today and in the recovery coming off of a 30% decline, the market’s ready for another run.

Justin Huhn (46:03):

I think that there’s a couple of catalyst, one being spot checking over on URNM in February. And Sprott likely getting a New York Stock Exchange listing for the physically uranium trust, which will most likely be a Q3 story. So we should see a generally positive situation between now and then, and we could see really violent upside moves once that does happen with the NYSE listing because then it just opens up. The market is 13 times bigger than the TSX that they’re on now. And who knows if they get an options market or not? It could get really wild. The one thing that I think is interesting that will probably buffer a astronomical move in the uranium prices in the short-ish term is we have this situation that kind of developed in August, September of last year, when we had a pretty severely back predated market with the spot price substantially higher, 15, 20 percent higher than the term price for a minute there. We had a term price at 35. We had a spot price of 50, right?

Justin Huhn (47:03):

And that lasted for a couple of weeks, maybe less than a week above 50, but still. Severely backwardated for a few weeks. So what we had was a number of carry traders who were holding physical pounds for future delivery for a contract they signed with the utilities, right. So they’re holding this pounds, and let’s say had the promise for those pounds deliveries for 2022, for example. What the can do in the meantime is secure contract, a midterm contract for 2023 delivery a month before they were supposed to deliver their pounds of utility with a producer at a long term price of $35 a pound and sell the pounds they’re sitting on the spot for 50. And so we have a certain amount of pounds that are being held in carry currently that will likely free up and add some liquidity to the spot market if we are in a severely backwardated market again. So if we see a bunch of money coming to there spot physical interest right now, and push the price back up above 50, which I think we’ll see probably in the next week or two, then what we’ll probably see is some more liquidity come from these carried pounds.

Justin Huhn (48:05):

So that’s going to keep the price from moon shotting to $80 a pound, it’s not like an endless amount of funds can come into this vehicle and move the price in a straight line up. That’s not how it’s going to work. There’s going to be periods of liquidity. So the first period of liquidity is going to come from the carry traders in this reverse carry trade; selling their carried pounds and in the spot market to spot cashing out, securing a midterm contract, for a lower price. It’s no brainer trade for them. So how much pounds are held in carry? That’s the question, right? Well, we think that there’s probably somewhere in the realm of maybe 20, 25 million pounds held in carry. All of that is not going to clear out. It really has to do with the level of backwardation to justify that type of trade happening. But that is going to buffer things in the short term, Sprott already purchased that amount of uranium.

Justin Huhn (48:52):

So how long will that buffer? I don’t know. But it’s going to keep it from going from 45 to nine in my opinion. I could be wrong, of course, but that’s my opinion. So we should see it generally positive market with a generally rising spot rating price. And if it goes in the way that I think it will with some liquidity coming from this reverse carry trade, and we should see spot continue to rise slowly, bring the term prize up, possibly it chills for a minute before this New York Stock Exchange listing. When that is confirmed, then I think we could have a more serious move. Once that liquidity from the carried pounds is worked through, and the spot market is thin, then there’s really no more liquidity to come in at those prices. There’s going to be some pounds that come from Japan because of utilities that have closed for good.

Justin Huhn (49:37):

There’s some reactors that are not coming back online in Japan. And some of those utilities are holding pounds on their books that they paid 80 bucks a pound or 90 bucks a pound or 70 bucks pound for 10 years ago. So I think when the price gets up in that level again, we’ll see some more liquidity come in from there, but it really is a relative consideration to what type of money is coming into the uranium market at the time. So long story short, very short term predictions in this market are a fools errand, and I try not to do it, and I suggest anybody who’s interested in this market, by the way, this is still a pretty good time to position considering the pullback, just taking a longer term view. I think that at the very shortest, we should see probably a two year bull run to an overshoot and uranium price. And it could go 3, 4, 5 years. And it could turn into a uranium supercycle. A lot of different elements are contingent on that happening of course. The broad markets are one of them, but I think that we’re in for a very exciting at the very least two to three years starting now.

Clay Finck (50:37):

Just for reference, today’s Wednesday, January 5th. Usually, it takes a couple two or three weeks for the episode to be released just for everyone that’s listening today. Justin, thank you so much for coming onto the show. I really enjoyed this conversation. And if the listeners are interested in learning more about the uranium markets, I encourage you to just do your own research and learn from as many sources that you can. And I think Justin is a really good resource to learn from. Before we close out the episode, where can the audience go to with you, Justin?

Justin Huhn (51:08):

The audience can find uraniuminsider.com. I’m on Twitter pretty frequently @uraniuminsider. I also have a daily podcast that I do on YouTube called the uranium market minute. It’s just kind of geared towards the day-to-day movements in the spot price and the flows and the spot vehicle and the ETFs and anything else I want to kind pontificate on in the uranium markets. But yeah, uraniuminsiders.com. You can contact me through there if you have any questions. And we can also give you a sample moose if you’re in checking out the type of content that we put out for out members.

Clay Finck (51:42):

Awesome. I’ll definitely be sure to link all those in the share notes. Justin, thank you so much.

Justin Huhn (51:48):

Thanks for having me, Clay. It’s been fun.

Clay Finck (51:50):

All right, everybody. I hope you enjoyed today’s episode. Please go ahead and follow us on your favorite podcast app so you can get these episodes delivered automatically. And if you haven’t already done so, be sure to check out our website, the theinvestorspodcast.com. There, you’ll find all of our episodes, some educational resources we have, as well as some you can use as an investor. And with that, we’ll see you again next time.

Outro (52:13):

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