It’s a common misconception that uranium is a rare element. It’s actually 500 times more common than gold, and there are traces of uranium in granite (4 parts per million), which makes up 60% of the Earth’s crust. In other words, uranium is all around us. In this episode of The Agent of Wealth Podcast, host Marc Bautis is joined by Scott Melbye, CEO of Uranium Royalty Corp., the only pre-play uranium royalty and streaming company in the uranium industry, and Executive Vice President of Uranium Energy Corp, a uranium mining and exploration company. With 36 years of experience in the nuclear energy industry, Melbye has a deep understanding of the supply and demand of uranium fuel.
In this episode, you will learn:
- How uranium is used to power commercial nuclear reactors.
- The important role uranium plays in medical, industrial and defense purposes in the United States and around the world.
- The possible risks and rewards to investing in uranium.
- Why supply isn’t meeting the demand/need for uranium in the United States.
- What it means to invest in uranium royalties.
- And more!
Resources:
Uranium Royalty Corp | Uranium Energy Corp | World Nuclear Association | Nuclear Energy Institute | Bautis Financial: 7 N Mountain Ave Montclair, New Jersey 07042 (862) 205-5000
Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.
Welcome back to The Agent Of Wealth Podcast, this is your host Marc Bautis. On today’s show, we have a special guest: Scott Melbye. Scott is a 36-year veteran of the nuclear energy industry, having held leadership positions in major uranium mining companies, as well as industry wide organizations. He serves as an Executive Vice President of Uranium Energy Corp., and the Chief Executive Officer of Uranium Royalty Corp. Scott, welcome to the show.
Well thank you Marc. It’s great to be on your show today.
A couple of recent Agent of Wealth episodes have focused on investing in alternative assets, but they’ve had a real estate flavor to them. Our latest was on investing in raw land. I’m excited to talk about a very different alternative asset today, uranium. We’ll discuss both uranium as an investment and also the uranium industry in general.
So, let’s get started. Can you take us through what uranium is, what it’s used for, and the fundamentals of the market?
What is Uranium?
Uranium is an energy commodity. It’s the fuel source for nuclear energy, which in the United States is about 20% of our electricity. It’s also about 55% of our carbon free electricity — which is where we’re really seeing exciting developments and growth, both in our industries with the mega trend towards de-carbonization, and our economy.
The aspect of nuclear power as a 24/7 base load producer of clean carbon-free energy has folks taking a new look at nuclear power, and we’re seeing that translate into plants being built around the world. Not just abroad, but also in the United States.
There are very positive developments, but it’s really an imperative. If we’re going to be able to meet electricity demands in the coming years — including electric vehicles and computerization of almost everything in our society — we’re going to need more electricity, not less. Plus, it has to be clean, as opposed to our oldest forms of energy.
So uranium is a way to play on the renewable energy trend that we’re experiencing. How does one get uranium? So let’s say a new plant is built, where does the uranium come from?
Where Does Uranium Come From?
Uranium is a mined mineral in the United States. We have close to a billion pounds of known uranium, and likely reserves of it in the Western United States. U.S. uranium is mined into what’s called yellow cake — or uranium concentrates converted into a gas spun in a centrifuge to increase its u235 content — which causes a fission. The fission basically creates heat in a fuel element that creates steam in a power plant.
So it’s mined here in the U.S. I imagine other places in the world have the ability to mine as well?
Yes. The leaders in uranium production these days are Canada, Kazakhstan, countries in Africa like Namibia and Niger, and Australia. The United States led the world in uranium production in the 1980s and is in the midst of revitalizing the industry with more innovative, environmentally friendly and lower cost technologies. All of which allow the U.S. to regain its position globally and compete with the Kazahks, the Canadians and other leaders.
How does uranium fall in the scale of what’s considered “clean” energy?
What Makes Uranium a “Clean” Energy Source?
Those of us in the industry have known that uranium is safe and sustainable our entire careers, but it’s now getting a broader realization amongst the investment community, political leaders and policymakers.
If you look at the track record of nuclear energy, it is as clean as wind and solar, in terms of carbon-free energy and pollution-free energy. It’s as safe as wind and solar, given billions of kilowatts generated since the 1950s from nuclear energy. Where it differs from wind and solar is that nuclear power runs 95% of the time, not 25-35% of the time, which is the case with renewables.
We’re not saying renewables are bad — renewables definitely have an important place in the mix — but nuclear power helps renewables work better by having a reliable carbon-free backup that runs 24/7 — not only when the sun’s not shining and the wind’s not blowing or at night. It runs through tough weather conditions like hurricanes, droughts, you name it.
As I said, it’s the largest source of carbon free energy in the United States today. And that surprises many folks.
Understanding the Demand for Nuclear Energy in The United States
The U.S. is beginning to see political acceptance for nuclear energy. Historically, nuclear power has been supported by the right, and opposed by the left. But today, Senators from the left, like Cory Booker out of New Jersey, support nuclear power alongside Senators on the right, like John Barrasso out of Wyoming. I think we’re beginning to make headway there.
If we’re going to make a meaningful dent in carbon emissions, we need a significant contribution from nuclear power. But not only the existing plants, like in New Jersey, we need to grow with both small modular reactors and advanced reactors that folks like Bill Gates are developing and deploying.
So we’re really in a growth phase for nuclear energy, which requires a lot of uranium.
You mentioned that 20% of the power in the U.S. is generated from nuclear, is it mostly for industrial or commercial use? Do you ever see it coming to the point where our houses or cars will be nuclear powered?
Well, they already are, with essentially 20% of our electricity grid in the United States being powered by nuclear energy. I don’t have the exact figure, but the percentage would be even higher for New Jersey, North Carolina, South Carolina, Illinois and Florida — states that rely heavily on nuclear power. Nuclear energy is already turning the lights on in one in five homes in the United States.
Another thing that we’re seeing is data centers and crypto mining facilities popping up next to nuclear power plants. These companies benefit from the green energy stamp they get on electricity used to either store data or produce Bitcoin.
We’re seeing nuclear power being used to generate hydrogen, which could be used as a fuel in trucks, buses and cars going forward. We’re seeing nuclear power as an excellent source of energy in very dry regions to desalinate and provide fresh drinking water. It’s not just electricity — nuclear power is taking many very important roles right now.
I think a lot about the risk of a nuclear disaster or leak, like we saw at Fukushima or Chernobyl. Is that overblown? Have there been improvements in the industry?
Improvements in the Nuclear Energy Industry
Well, I think improvements can always still be made. With each one of those incidents, the industry has learned lessons and improved. As we stand today, new reactors are touted as even safer than the current fleet, and the current fleet of reactors is the safest form of energy currently used.
Since the 1950s, nuclear energy has been proven to be as safe as wind and solar, which includes measures of injuries and fatalities. I think nuclear energy being unsafe is a major misperception. We did a poor job communicating that there were no radiation injuries or deaths at Three Mile Island and Fukushima. Chernobyl was a different situation — I think that was more of an indictment of faulty technology, technology we would never deploy in the United States. The Chernobyl disaster said a lot about Soviet secrecy and a lack of transparency in government.
We can quite proudly say that nuclear energy is as safe and clean as wind and solar. And that’s based on billions of kilowatts generated since the 1950s.
All right, let’s transition to investing in uranium. What are the different ways someone can invest in uranium?
How to Invest in Uranium
One of the best ways to invest in nuclear energy is through the fuel cycle, and that’s investing in uranium. You can do that in a number of ways.
- You can invest in mining companies that produce uranium.
- You can invest in ETFs that hold and warehouse uranium.
- You can invest in ETFs that bundle uranium and nuclear equities.
- You can invest through uranium royalties.
The company that I’m the CEO of, Uranium Royalty Corp, has interests in 16 different mines/developments around the world. Investors benefit when those mines go into production through the royalties we receive into the company.
One attractive feature of uranium is, unlike gold or copper — where there are hundreds of ways to invest — the uranium space is quite concentrated. So when you see investment capital flowing into the uranium sector, it’s flowing through a relatively small number of doors. That creates a lot of trading liquidity in the better uranium names like Uranium Energy Corp and Uranium Royalty Corp.
Today, we’re producing 60 million pounds of uranium globally, which is less than the 191 million pounds that we’re consuming annually. We’ve been in this situation for four to five years. If you were an economist, looking at uranium no differently than you would at copper or gold, you’d be impressed with the mismatch that we have right now.
We’ve been drawing off of excess uranium inventories, which were admittedly made worse by Fukushima, a disaster that severely impacted demand and supply 10 years ago. While we’ve recovered from that, uranium production is still well below where it needs to be to match consumption. So we see incredible pressure on uranium prices as inventories are depleted and the market’s rebalancing and utilities come back.
There’s also a mega trend towards clean energy, and nuclear power fits that narrative.
Okay, I definitely want to come back to the conversation of royalties. But, first, let’s start with mining. Is mining similar to oil and gas drilling, where land is leased and mines?
Yes, we lease land from landowners or produce on federal lands. In South Texas, where Uranium Energy Corp is based, we’re focused on what’s known as in situ recovery (ISR). Your listeners would probably be familiar with conventional mining — open pit underground mining. This is something very different.
ISR technology is now supplying 50% of global production, but it’s more a well field drilling technology, where we drill into a sandstone or body. We circulate sodium bicarbonate — which is very similar to Perrier water — and the oxidized uranium off the sand and we pump it to the surface as a liquid. So there is no drilling blasting, mill tailings, open pits and ground disturbance which you see in other mines. Listen, we need to mine other minerals. I’m not anti-conventional mining, but environmentalists love the technology we use because of the minimal impact on the land.
So it’s different from, say, fracking?
Different from fracking, yes. Fracking disturbs the underground structure. We’re basically reversing the natural process and pumping uranium out of the ground as a solution, the same way that the uranium came through millions of years through ground water.
What’s the timeframe from when a mining company starts mining, to when they’re able to sell and realize a revenue on it?
One of the advantages is that the barriers to entry in the uranium industry are quite high. As you know, licensing and permitting anything today can take years. Uranium is very highly regulated. We go through the nuclear regulatory commission or their equivalence in the states we operate, and it may take 6-8 years to get a mine permitted, licensed and into production.
So as investors look for potential companies to align with, I’d encourage your listeners to look at companies that have permitted licensed operations, or are miners that already have facilities. Uranium Energy Corp, the other company that I’m affiliated with, has an advantage with existing infrastructure, standby operations and fully permitted deposits.
Is it equipment and labor intensive to mine?
It’s not very capital- or labor-intensive because of the technology. When we’re constructing well fields, we’re hiring a number of drilling contractors. A lot of our employees can come from the oil and gas industries because they’re experienced with pipes, valves, pumps, and constructing well fields. So it is a good thing in areas where oil, gas and coal are being impacted by public policy. You know, some of those who lost jobs can be employed in our sector.
Can you talk a little about the correlation of the price of uranium versus mining? How does the mining company decide on pricing?
How is Uranium Priced?
Well, uranium is trading at about $33 a pound in the stock market. It’s up considerably from $16-17 a pound four years ago, but it’s still not at a high price point. That said, new mines need north of $50 a pound to get into production.
So while we’re very encouraged that uranium prices have steadily increased with all of these great fundamental developments, uranium production does not come online quickly. Some of the better, lower cost mines will be able to come on sooner than others. And that’s where the competitive advantage has come in.
We expect demand for uranium to increase 26% in this decade, from 2020-2030. Yet, uranium production is already lagging. So all of that bodes towards higher prices and a strong performance by the uranium equity.
All right. So let’s transition a little bit to royalties. Can you explain how that works in terms of investing?
How to Invest in Royalties
A phenomenon that’s only about 10-15 years old is the emergence of royalty and streaming companies in the natural resource sector. This is in base and precious metals companies like Franco-Nevada, Silver, Wheaton Precious Metals, Sandstorm, and Royal Gold. These companies don’t actually own mines. They don’t go out and lease the properties. They don’t maintain large workforces. But what they do invest in are royalty interests in those mining developments.
So they provide financing to a miner, to build their mine and get it into production. They take a percentage royalty from every pound produced, or in a streaming that’s a financial interest, for a streaming relationship. It could be a percentage of the uranium/gold/copper produced.
Right now, Uranium Royalty Corp. is the only royalty and streaming company in the uranium space today.
Investors are interested because royalties are styled a bit like an ETF. We — experts in the space — go out, do the due diligence and align with the better counterparties to put into the portfolio. Uranium Royalty Corp. has 16 royalty interests in the portfolio today, including two of the largest, richest ore grade mines in the world.
Our investors rely on our due diligence and legwork, and benefit from the royalties that result from those investments.
So the royalty company invests in these 16 different operations, and then generates some kind of income. Is that income kicked back to investors as a dividend? Or is it reinvested?
So a mature royalty company establishes a steady cash flow from royalties and spins off dividends. This is the desire of all royalty companies. Uranium Royalty Corp. was only listed publicly a year and a half ago on the Toronto Stock Exchange and this year on the NASDAQ, so we’re still in the growth mode. Any capital raised is going to a creative acquisition.
We’re not content to just sit on the 16 royalties we have, we want to add more and grow year over year. As we start receiving cash and revenues from royalties in the early years, we’ll continue to reinvest in more royalties.
One of the first questions that someone’s going to ask is, what are the risks? It’s a relatively new industry for a lot of investors, so they don’t have a lot of familiarity. Are the risks similar to any type of natural resource risk?
What’s the Risk?
They are. Mining and resource investing is subject to a number of risks. There’s a risk of whether or not you’ll discover a deposit in the first place. There’s a risk of mining at a cost, which can then meet the market risks. There are also political risks around operating in various countries around the world.
Resource investing is unique that way, but it provides a risk return that a number of investors really like. It isn’t like investing in a stable asset with small returns. Natural resource investors could sit on a gold stock or uranium stock for three or four years that sits flat, but then increases 5-10x when the commodity cycles back. And that’s the thing investors have to realize: All resource investments should be assessed by the underlying commodity itself. Is it in demand? Is it in short supply? Are the supply and demand funnels pointing to higher prices going forward?
How has the price of uranium been correlated with inflation?
Uranium tends to react more to supply and demand. Inflation will hit uranium miners as well, so if we have a shortfall of production to consumption today and inflation increases, the potential shortfall in uranium supply will be more acute. I think it really adds to the investment thesis.
Inflation, in that respect, should be supportive of higher uranium prices.
Earlier you mentioned the political aspect mining uranium could be a risk. How does uranium in the United States compare to, let’s say, uranium in Africa in terms of usage of it. Also, is there something similar to OPEC, where there’s a global consortium or group that’s associated with it?
Uranium and U.S. National Security
We have an interesting situation in the United States. We’re the largest consumer of uranium in the world, yet we produce very little from our country’s mines. Some of that is due to pure supply and demand fundamentals, but also due to a heavy degree of state-owned companies in Russia, Kazakhstan and Uzbekistan, which aren’t as sensitive to market conditions.
We’ve come to the realization that our supply chain is at risk here. We’re reliant on supplies from countries like China and Russia to run our power plants.
There was a great deal of effort, under the Trump administration and now beginning in the Biden administration, to realize the importance of nuclear energy and it’s the fuel cycle. Again, an industry that at one time was very partisan, now has bipartisan support.
For example, right now, the United States is working to establish a strategic uranium reserve, similar to the oil strategic reserve. For that to exist, the U.S. Government would buy domestically produced uranium for the reserve. Why is a reserve important? Because in addition to the electricity generating plants across the United States, we have a fleet of 94 reactors and about 80 aircraft carriers and submarines that run on nuclear power. They require U.S. origin uranium.
There’s not only an energy security need for greater production in the U.S., but also have a national security need.
You mentioned your company is the only uranium royalty company in the country. Do you see other companies being incentivized to make the same type of royalty deals?
You know, it’s wonderful to be the early mover. We’ve seen that space grow dramatically in copper, gold and other commodities, so we probably won’t be the only game in town forever. I think what’s important to note is that we’re uranium people. Members on our team have been with the major uranium producers, and we bring decades of expertise because of that.
Investors interested in the royalty company are impressed by that. But it’s also important for the counterparties, those that we provide development capital for. So we think we’re ideally positioned, but it is a growth platform.
Great. So we’re just about out of time, Scott, I want to thank you for being on today’s show. You gave us a lot of great information about the uranium industry and different ways to invest in it. How best can someone find out more information about you, and the companies that you work with?
You can find information about Uranium Energy Corp at yourenergy.com and information about Uranium Royalty Corp. at uraniumroyalty.com. If you want to learn more about nuclear energy and how it fits in the global energy mix, I’d encourage you to visit the World Nuclear Association’s website, out of the UK, and the Nuclear Energy Institute’s website, located in the United States. Pay particular attention to small, modular, advanced reactors. That’s a really exciting new development. It’s been a pleasure to be with your listeners today.
Great, thank you. We’ll link to all of that in the show notes. Thank again, and thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.
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