Extraordinary Future of Energy (Part 3- Uranium)

00:00:08 Deb Randhawa is the chairman and CEO of fission as many people probably know. Nick Hodge rights to the outsider letter. He's from Baltimore moving to Spokane. I think we're going to keep it at 2 to 2, yeah. Both at the end we can do another powwow.

00:00:25 Probably better together I think yeah. When we talked about uranium, it's important to understand Power Systems. That's what I did. I went to BCIT. I'm an energy guy. I know electricity.

00:00:39 America has an electrical capacity of 1,100 gigawatts. You need to know the difference between a gigawatt, a megawatt and a kilowatt, are typical large power plant whatever it might be is 1 gigawatt. Ina has the world's largest electrical capacity 1,500 gigawatts and climbing

00:00:59 If you look at the numbers here, don't get confused by everything. I'm going to pinpoint exactly what we're looking at. They were so successful in green energy, they built 150 gigawatts of wind in only a few years, 100 gigawatts of solar out of nowhere. They also have a lot of natural gas that's going to be coming into China so as they modernize their coal-fired power plants, this is all going to get smashed on its head in my opinion. Look at the red box here. We're going to talk about nuclear power.

00:01:31 They have a capacity today of 40 gigawatts, 60 reactors are under construction, third of them are happening in China. If you look at the 2025, they plan to build up to 97 gigawatts as we speak, three percent of China's electricity comes from nuclear power. Let's go forward.

00:01:54 There are 447 nuclear reactors operating in the world today. In the year 2030, are there going to be more or less. Dev.

00:02:08 Dev Randhawa: He's one of these things. Okay. I think more and to build a story for nuclear power, you got to build a story for energy. By 2030, we'll need 150 percent more energy. Where is it going to come from? It can be renewable, a coal, gas.

00:02:31 The model for most people in the world is America. America, 20 percent of their energy comes from nuclear and that's the goal for China. As you mentioned, 3 percent, so they've got to go seven times where they are today. Yeah. There's no doubt about it. It's got its problems but it's still the only carbon free footprint base load energy. Meaning we all go home at night, we all turn our stuff on at once. You'd be able to turn it on.

00:03:04 I think there'll be more United Emirates, home of cheap oil, Saudi Arabia, they're all building reactors. Because I think, they just want to have a back-up plan to what they're doing. Obviously in countries where they their finger up every 3 to 4 years, see with election goes. Move one or two points. They'll talk about shutting down nuclear then they realize it's impossible. There's nothing to replace it.

00:03:32 Even though after Fukushima, what change was the buying cycle but we have more reactors today being built and we did at the time of Fukushima. To me, I definitely see higher demand for nuclear power because I see a higher demand for hour.

00:03:51 Gianni Kovacevic: What do you think Nick?

00:03:53 Nick Hodge: I don't know if there's going to be more reactors in 2030 than there are now. Like Deb just said there, we're building more now than we did free the Fukushima incident. To me that says that the world isn't turning away from it. We've had announcements from Germany that say that they're turning away from it and that may be so but the fact of the matter is that Japan itself says that it's returning to nuclear. In fact for two years in a row now, the International Atomic Energy Association just had a report out on 2016 that said 2016 was the second year in a row, 2015 being the first. That ten new nuclear reactors came on globally and ultimately, that puts the amount of nuclear electricity being generated at an all-time high, an all-time global high. I think that has to translate into the years ahead as you have, you and I talked earlier there's two billion more people coming to the planet. They're all an energy hungry and they're not all environmentalist. Even many environmentalists, if you've read some of the op-eds that have been written in the New York Times and The Washington Post lately, they've been calling for to become bedfellows with the nuclear agency because they realized that while yes, wind and solar are going to play a critical part in the future energy mix that ultimately they're not base load and until we can get enough lithium out of the ground at a reasonable cost to store energy in some big way that it could feed the grid. Then the only clean alternative for a base load backbone is nuclear and as you said, there's 61 under construction right now and that's what I look to.

00:05:31 The 61 under construction are going to come online. They're not going to be abandoned. They're it's a multi tens of billion dollar commitment and each one that gets fired up is China's doing to a quarter now requires 1.5 million to two million pounds a uranium just to start up and then you know some other half million pounds of uranium just to keep them running. It's a fun exercise to look 20 or 30 years into the future, the fact of the matter is, I'm looking for today and the world nuclear Association says that we're approaching a supply shortfall in uranium where we're working through the secondary supplies and look, the countries that are that are hungry for uranium that are leading the demand growth Russia and China. They're going out globally in a big way it Dev can talk to this.

00:06:14 The Chinese invested a large chunk of change in his company at then higher prices higher stock prices at the time. The companies that needed and that are pursuing it in a big way I think are going to be undeterred.

00:06:25 Gianni Kovacevic: Previously in the old first generation nuclear reactors, they were a lot smaller. They were maybe 500 megawatts, half a gigawatt. Today when they build them, they're a gigawatt, gigawatt and a half in a complex. You can maybe talk about the amount of uranium that used to go into a reactor, the amount of uranium that's going to go into the new reactors. Even if we're in a scenario where there's 350 reactors, they likely will require more uranium than the 447 smaller ones.

00:06:54 Dev Randhawa: Very much so. They're going to get more efficient so the numbers are always going to move back and forth 100,000 pounds or it's going to move 500,000. You know what? We can talk about what they need their new ones. What's the problem? Look, what we're talking with is, if I build a story here for more reactors. The question you should be asking is why the heck is that spot price in that 20? That's what frustrates most people here, right?

00:07:21 We can talk more reactors but for me that's what if the markets were efficient, uranium would be at $60 right? Because that's the average cost of putting a mine in production, but it's not. It's 20. That begs the question fundamentally why are we there. Whether they use more or not and other people have got better numbers than I do because I talk to the Chinese, it don't give me straight numbers. Their partner, they don't give me straight numbers because they don't want, everybody to know what they're doing with impounds lies. They're storing, storing, storing.

00:07:56 I said, you found do you need 500,000 pounds? Do you need 250 now? They won't give you any answers on the new reactors. We won't tell you. They are the leaders. CGN will be the largest utility in the world in the next three to five years.

00:08:11 You even heard of them 10 years ago. They have the political will to get it done. We don't.

00:08:18 Gianni Kovacevic: Has everyone recall Fukushima happened in 2011. Yeah. Everyone that's obvious? I was in Tokyo last week. I spent 10 days there and I met with a lot of different people. Okay, Japan has a power capacity of 290 gigawatts. Because they shut down the reactors, operating about 240. What are they going to do?

00:08:40 I asked you Nick, is the green movement which is very strong in Japan it can these people have an impact now that LNG is globally prolific, the infrastructure is being built up. If they increase LNG natural gas energy production and the green energy movement derail a little bit of the nuclear movement.

00:09:05 Nick Hodge: Derail is by logic contradictory to a little bit. If you derail something, it goes off the rail I don't think derail a little bit. Are you the derail or you don't. No. I don't think they're going to derail the nuclear movement in Japan. As I said in my first comments, I think they have to be bedfellows.

00:09:25 Earlier, I was on a panel where we gave you know some of our top picks and I was talking about Skyharbour Resources as a uranium exploration company exploring in the Athabasca. I went over after that panel and I talked to the CEO specifically about Japan and he said, I was over there recently and I was talking to some people at Mitsubishi and they just made a $500 million a half a billion dollar investment into Ariva which is a uranium company at this point since they divested the nukes to EDF. I look at a half a billion dollar investment coming from the very place that suffered the Fukushima disaster and that just says to me that no, they're still going to need to pursue nuclear energy, nuclear capacity. In fact they are. There's some that have come back online. There's some that are waiting in line to come back online and since the nuclear capacity has been taken off, Japan has suffered rolling brownouts. That just shows you how critical it is to their economy.

00:10:25 When they when they host the Olympics, when Tokyo hosts the Olympics, I don't think that they're going to want to have rolling brownouts. To me, it would seem they want to have some more base load and you can't have that because solar wind because it's not base load.

00:10:38 Dev Randhawa: First of all, look what's happened since they've gone to gas LNG. First of all, they pay up to three times more than their competitors do that Americans do with LNG. How the heck can – if you're an export company, okay? How do you compete when you're based, very basic cause of three times? Two, to the levels of CO2 if that's what you think that changes the climate but let's assume that well then those have gone through the roof. Kyoto to the City of Peoria can I, you mean its own protocol that except for the rest of the world. Why? Because they're using LNG.

00:11:13 Early look at the current deficit. The amount of money that going out the door and their trade deficit because the LNG is such a big part. I don't see a choice. The problem you have in Japan at the federal level every level whether it's court or political, they want to go back. The problem you've got is, same in America, you can get some judge and throw something in front of them and get an injunction. Every time they have gone to the federal level, the pro-nuclear groups have won.

00:11:43 At the federal level, the appetites really strong for unfortunately at the state level not so it just slows it down. Obviously, we're all disappointed that Japan hasn't come back on. At the same time, we'll see I think for now two or more, four are coming this year. I do see them coming back on. I don't think they have a choice because they need the energy, the pollution problem, the current deficit problem, at every level, they need it back.

00:12:13 It takes the political will and unfortunately, politicians aren't always trying to do the right thing. They're trying to do whatever it takes to keep them in power.

00:12:20 Gianni Kovacevic: By show of hands, how many people here actively follow the uranium price, by show of hands. Everyone's probably waiting because we all know that it's trading at $20, $21. There is not a producer in the world that makes money at this price. Common sense would tell us the price is going to have to have one of these lifts. There's spot market and there's the long term contract market. I think Jordan does it very well. We spent an hour yesterday explaining the negotiation that's taken place now. If you're negotiating for long term contracts, you better to have a low price so you can maybe get something more interesting for a longer term basis.

00:12:57 If we're waiting for this window, I overheard you guys of course in your panel it's about supply. Almost irrespective of what happens on this end in 15 years. There's a window where the price should have a hockey stick type effect so that something can happen good. Are you in agreement there?

00:13:15 Dev Randhawa: Rick looks a lot smarter than I am so let's plagiarize him for a moment. If you get paid 20 but it cost you 60, I don't care how much you produce you still lose money. Here's the problem. We're actually talking about the spot price. That's our problem. The spot price isn't what people do business at. Most utilities are doing business at the long-term price. That's number one problem. It's irrelevant because there's no one in their freaking mind is ever in a signed contract a spot. The problem you've got, utilities when Japan was in the business they bought uranium five, ten years out, okay? Meaning they knew the next five to ten years how much uranium they needed and they bid it.

00:14:02 The problem today is utilities were going to two to three years out. They seemed to think, it's always going to be low and it stays this way. Guys, I've been doing this for 21 years. I am the longest, apparently longest fool a CEO of a mining of a uranium company and I've seen this before. It was $7 a pound and like Rick said today, he picked five stocks worst-performing stock when it turned was 22 to one on your money. Some made like paladin from one penny to $10. You're a contrarian or you're not.

00:14:34 To me when it's obvious that there's no way anybody can make money here. The reason the price is where it is, the spot price is the way utilities do business now. They're very short-term thinking and they don't think in the long term like Japan does 5-10 years out. To me it's a great opportunity. You know what? There's only a few hand, there's a few good names in the business. You know why? Because there's only a few good people left.

00:14:58 Anybody that's left in our business right now is a survivor and when it turns it turns. People say when. It's not a question of if, it's when. There's no way you've got China and all these countries spending billions and billions get to stay in the business they're going to say, you know what? You got to remember, it's not like oil. You can turn down a well . Let's turn it that.

00:15:22 When you put a reactor on, it's going to cost you a fortune. Hundreds of millions to say I want to put it on. You can't do that. I just think it's a question of the way it's the buying cycle. Fukushima, I didn't drop the demand for uranium it changed fundamentally how utilities. Unfortunate utilities, I wish I have a slide and it's weird. You'll see, when times were low times were really bad, it's very little contracting going on. You just think about it.

00:15:52 When prices are low, they don't do a lot of buying. The moment the prices spiked, did all their buying. Who the heck does that, right? What normal person says, I'm not going to buy when things are low. No. I'm not going to do that. I'm going to wait till they're high. You guys all did that, you wouldn't come to very many shows. That's what they do. We've got a chart at our booth and I'm happy to show it.

00:16:16 Whenever the prices were low, volumes contrast was low. As soon as they shot through the roof, they started buying. They act like lemmings. It's a lovely chart. It shows you the mentality of the utilities.

00:16:30 Gianni Kovacevic: Good comment there. Any quick comments for you Nick? Any suggestion for the crowd perhaps?

00:16:35 Nick Hodge: I would just add that I could go, the price can go high very quickly because while the utilities will wait until prices start to rise to contract, they're relatively price agnostic because the cost of uranium to run your reactor is such a small, small fraction of the overall cost of building it and running it and maintaining it and decommissioning that. They don't care if uranium is 35 pound, dollars a pound or $75 a pound. It's irrelevant to them.

00:16:58 Gianni Kovacevic: Okay. Good. Just for open disclosure, I strongly suggest people follow the sector very closely, energy in general so you're current. Because it's not static. It's progress bill. My friend Jordan, I'm a shareholder of Skyharbour. I know a lot of people have recommended it. Very few companies in exploration stage uranium. I'm in it for the discovery success.

00:17:23 Now if I get a higher uranium price, fantastic. If a good team gets a good discovery, you're going to make money. If that's also good education tool and just a plug for you guys. I own that one as well.

00:17:35 Thank you guys.