Buy Nuclear Renaissance, I Am

Introduction

The nuclear energy has been left abondaned for more than decade, for that it remains “the most successful failure of all time”, Valcam Smith puts it. The huge capital costs, large development timeline and harsh regulation has hindered progress - from top to bottom - in decades and have incentivized its counterparts solar and wind, which offer low cost, and less development timeline.

Despite trillions of dollar investment on renewables- such as solar and wind- over decades, they have generated least electricity relative to capacity. In contrast, Nuclear energy constructed decades earlier still generates more than 45 percent of carbon free source of energy in Usa. In other words, cut the nuclear energy - 45 percent of carbon free energy is vanished.

The dread of nuclear incidents is, finally, supplanted by the beacon of hope to achieve pressing net zero target with: critical government and public support, reassessment of nuclear energy policies, nuclear restarts, and involvement of big tech companies. Thereby, what we are witness are not merely enthusiasm, but a seismic shift in the cusp of remarkable transformation.

Having already share my thesis on nuclear energy and the shifting dynamics in preceding years, I now decided to pen my thoughts on nuclear fuel supply chain and my contrarian play in beaten down sector.

Energy Return on Investment (EROI)

EROI is the ratio of energy delivered from source against the energy required to get the energy source. Though it is true that chosen examples are never the good ones -nevertheless, below examples remain fascinating one.

In 1956, ocean liners carried 80% of transatlantic passenger traffic. With the Introduction of ariel flight, Boeing 707, in 1958, it rapidly captured 80% of the market by 1964 due to its superior energy efficiency- using 40–60% less energy per mile- than ocean liners. Albeit, reduced travel time, comfort was a important factor, it was the energy efficiency that rendered ocean liners obsolete.

For instance, the Concorde, launched in 1976, promised supersonic speeds, halving travel time across the Atlantic. However, it consumed 50% more energy per passenger mile than subsonic jets like the Boeing 747. Its inefficiency prevented mass adoption, relegating it to only niche luxury market until its retirement in 2003.

These examples illustrate how energy efficiency can trumps other advantages, such as speed. Applying this framework to modern energy production, it becomes evident that replacing high-EROI energy sources like hydrocarbons (30:1), nuclear (75:1) with lower-EROI alternatives such as offshore wind (10–15:1) or solar farms (5:1) could lead to economic destabilization, akin to Germany.

Conventional Reactor VS Molten Salt Reactor

The current conventional reactor (water based) utilizes high pressure to prevent water from boiling at core temperature. By maintaining the pressure, the water is kept in liquid state -as water boils at 100 degree - to absorb the heat generated by fission reaction. Therefore, The major hurdle for this technology is maintaining and constructing the pressurized vessel, as both requires high-quality material, complex engineering, and stringent safety.

Molten Salt Reactor, on the other hand, operates at atmospheric pressure since molten salt boils at 1400 degree celsius. The molten salt are designed with containment structure to hold liquid salt. In the event of reactor vessel were to rupture, or fail , the liquid salt would solidify rather than boil or explode, acting as redundancy (fail-safe). In other words, Even if there were attempt to intentionally cause an explosion, the reactor would not explode. Thus, the threat of radioactive water or vapor scattering is essentially impossible.

However, the one critical challenge for adopting molten salt reactor is it adopts HALEU (High-Assay Low-Enriched Uranium) technology. HALEU is a more concentrated form of nuclear fuel, enriched to around 10%, compared to 5% for LEU (Low-Enriched Uranium) used in traditional reactors and over 90% for weapons-grade fuel. Therefore, it is essential to establish regulations framework to prevent this fuel from falling into the hands of adversaries or the transfer of uranium enrichment knowledge to hostile nations.

Bifurcated Market and Bottleneck

Russia controls forty percent of global enrichment of uranium- more than twenty five percent market share in United States, and former soviet nation, surrounded by Russia, controls more than forty percent of global yellowcake supply. The total production of uranium (yellow cake) in United states was less than one million with consumption of more than fifty million annually in 2024.

After Russia-Ukraine war, Russia has entered into sanction zone for -perhaps, long time. Consequently, United States realising that twenty percent of their energy relied upon russia passed a law to ban Russian Uranium effective from 2028. This was bipartisan support from both democratic and republican parties, thus, even if the war is ceased it is unlikely the law will be repealed

In Response, Russia , knowingly, retaliate - using as economy weapon - by banning the export of enriched uranium to USA effective from 2025. After Cop 28, more than 25 nations has pledged to triple their nuclear energy, so russia already has huge demand from other friendly nation. Thus, the market is fiburicated between East (Russia, China, and other Bricks nation), and West.

"Lest we forget, there was already structural supply deficit after decades of underinvestment on nuclear fuel. "

Trump Administration

The new Government, under trump administration, has strong stances on energy independence with the use of fossil fuel and expanding nuclear energy, whilst Democrats has stance on transitioning to clean energy. Yet, Nuclear energy is the only source of energy that has smallest gap between two parties among any other source -thus, being bipartisan.

Furthermore, Trump has already vowed to issue rapid approval for nuclear power plants and has been vocal for energy indepedence, backed by big tech companies–such as, Microsoft, Amazon, Meta, and other Bilionaries –such as, Mark zukerberg, Bill Gates (founder of first Molten Salt reactor), Sam Altman (Founder of OKLO), Elon Musk.

Nuclear Fuel Supply chain

In the fuel supply chain, firstly, natural uranium, found under the soil, is mined and processed to convert into u308, commonly called Yellow Cake. The primary process of mining are conventional mining, and ISR mining. Former, as the name suggests, is mined traditionally and process using mill. Later is the advanced and environment friendly method of extracting uranium without need of any excavation. Secondly, the yellow cake is sent to conversion facility where it is refined and chemically processed into Uranium HexaFlouride Gas (UF6). It suitable for enrichment (not u308).

Thirdly- and most importantly, the UF6 is enriched to the specific level tailored to reactor design. The enrichment is scarce technology with very few country having access to it -namely, Russia, USA, France, China, Germany. Finally, the enriched uranium is sent to fabrication facility where it is converted into small cylindrical pallets. These pallets are assembled into fuel rods to be used in reactor.

Thesis

Ouch! The yield and sentiment for uranium has been lackluster this year. It was frustrating year, despite seismic shifts, and a remarkable start; So, Let me be clear on one point: I haven’t the fainest idea as to whether future return will be higher or lower next month, or year, from now. What is likely, however, is that the progress for nuclear energy - importantly, supply and demand gap- is likely to advance, perhaps substantially so, well before sentiment turns up: “It is not the matter of if, but when”.

The enrichment price has shot up to historic high- more than 500 percent after ukrain invasion; So the price of conversion at 600 percent; Similarly, The long term price of yellow cake (u308) has increased by north of 80 percent. The clue investors are missing for yellow cake (u308) is that it is the final step of fuel cycle.

First, operator of reactor sign contract for fuel fabrication then negotiate for uranium pallets that will be loaded into fuel assemblies. Next, Contract for conversion service needed to produce UF6 that gets enriched. Finally, Having all the contract in place, they secure supply of yellowcake.

Nuclear fuel buyer are concentrated on securing contracts for enrichment and conversion service with both ascending to historic highs. Fuel buyer have been delaying their purchase of yellowcake until it is needed at the conversion facility, hence, long term contract volume has plummeted, last year, below replacement rate needed to keep their reactor fueled. As Cameco’s Grant Issac remarked, Enrichment and conversion are hitting all-time high because contracting for those service is “done at replacement rate”; Fuel buyer can delay procuring yellowcake feedstock; However, eventually they must begin aggressively sign contract with producer at replacement-rate levels.

My Bet

Peninsula energy is a junior mining company that is set to produce dry yellow cake by 2025 in Wyoming, Usa, using insitu mining technology. The company has 58Mlbps JORC recourse more than any other company in USA.

The company market capital is just north of 100MUsd, while they raised more than 100M Usd for construction of project. Thus, it is trading at less than book value –that is, if the company was to be liquidated, the company still retains more value for shareholder ideally. Otherwise, if the company is set to produce -at the height of seismic shift in public and government for energy independence and nuclear energy, it is rational to expect that fund will starts flowing to the company.

Though we cannot ignore the herald virtue of capitalism, that it efficiently allocates capital. The argument is market will direct investment to promising business and deny it to those destined to wither. Occasionally, however, market misprice the investment leading to significant discount to intrinsic value of business. This should be the goal of any enterprising investor to detect the mispricing.

Moreover, this reminds me the quote by phil fisher: “Company is like restaurant, offering menu that attract people of similar taste”. The commodity market is volatile so much so that the value of company fluctuate more than fifty percent in month. Short sighted investors with the aim of quick flip during favorable times are common. Thus, the valuation are shifted to company who are more vocal to promotion, rather than ground work. In regulated business like commodity, i believe it is impossible to be smarter than your dumbest competitor - as in the end, all are selling rocks. Therefore, the market cap should be based on recourse extraction capacity.

In comparison to peers, for instance, Boss energy with 2M producing capacity is trading at more than 1B Aud. Similarly, Urg energy producing less than 1M dry yellow cake, and set to achieve 2M around 2026 is trading at 400M Usd. Wayne Helli, current ceo of peninsula energy, was also the former ceo of urg when they started production.

This company was beaten down to knees by the last minute dispute on toll milling agreement followed by capital raise for the construction of processing facility. As with any junior miner, they did the same by raising capital at the cost of owner. The shareholders were not pleased with that decision; With any mining companies by achieving production, it is rational to expect production target not likely to be met, particularly to junior mining company with limited capital, causing large disparity between price and value to this company.

Furthermore, Peninsula energy shifted from alkaline method of extraction to low-PH sulfuric acid method. The geographic nature of Wyoming has high carbonate content which is unideal for low-ph sulfuric acid method, so most companies prefer alkaline method. However, the Barber region, company flagship project in wyoming, lays on inclined hill, which is said to contain low carbonate- verified from multiple study by competent personnel, suited the shift to low-PH method. The low-ph method is used world-wide, and considered aggressive form of extracting uranium- widely used, in Australia and Kazakhstan.

The transformation to low-Ph perpetuated the complexity of project. Thus, Investor started abandoning the project leading to large discount -by any measures, as if the project is set to fail; This is where i noticed the disparity between price and value- based on parimutuel betting (ratio of risk and reward).

Disclaimer

This information provided in this blog is solely my thoughts on nuclear energy fuel supply chain. Any views or opinion expressed on this blog are for information purpose only. The information on this site may be inaccurate, or bias, and should not be considered as investment advice.