Azarias Capital on Uranium 101

Brandon Beylo: Daren Heitman of Azarias Capital, thanks so much for coming on the podcast. I want to say early this week and I was like, Hey, I read your letters. I was fussing around the uranium space and saw that you had written about it and tweeted about it and want to see if I could pick your brain and get you on the podcast. And here we are. It’s a Thursday. This is going out tomorrow and it’s pretty quick, turnaround time. 

Daren Heitman: Yeah, I’m happy to talk about my favorite topic. Why? We’re bullish on uranium.

Brandon Beylo: So how’d you get involved in investing in the first place?

Daren Heitman: I’ve been an investor for 30 plus years. It always in the public equity space and primarily at boutique value shops. So started in starting Chicago, found my way to Philadelphia about 20 years ago. And that value orientation is what led us to uranium.

Brandon Beylo: And were you always invested in some part of the natural resource space or you didn’t touch natural resources and then maybe sometime in 2017-2018. That seems to be kind of the point at which a lot of value, guys started getting interested is that when you first dove into natural resources or were you involved in coal or oil or any of that?

Daren Heitman: Yeah, that’s a great question. I mean that provides a lot of context it to what we do in general. So to serious are our primary focus. Our flagship strategy is a small cap value strategy and it’s concentrated too, which isn’t that real relevant? but it does make us a little bit different. But the key the overlap with uranium is that everything that we do is based on finding companies that are poised for a fundamental recovery. And so, even though we’re bottom up stocked by stock equity analysts,

Daren Heitman: Our style leads us to industries that are cyclical troughs and we have done that over the course of our careers. I say because one of my colleagues is Chris Gillespie, who is our primary analyst on uranium, and he and I work together in the early 2000s at a firm called Schneider Capital Management where we did a lot of really good industry work and always based on the cyclical dynamics so that industry and he has been involved in the actual physical commodities in the past, always in the public equity space and then I’ve done a lot of commodity investing, but it’s a little bit different. it wasn’t natural resource resources or physical commodities, but when I talk about a commodity industry, I’m really talking about any industry where the participants are price takers. So I mean that could be trucking, it’s really kind of homebuilding. It’s really a lot of industries and we analyze those industries through the same lens of Mike economics.

Brandon Beylo: Got it. No that makes sense. And so at what point did uranium come across your desk and there must have been some sort of catalyst where you had to clear everything out and all right this is a big opportunity. I got to spend a lot of time on it.

Daren Heitman: Yeah, we flagged it in probably 2016. It was simply because we saw the price of uranium in our general reading had fallen into the 30s. And Chris and I had never owned Camaco because that would have been the one. We would owned, over a careers but both of us had done enough poking around in the space, over our careers that we had this impression that the price of uranium over the long term need to be in the 60s. So seeing the 30s, that’s just signal. We need to do more work. What regardless of what industry we’re considering.

Daren Heitman: The more work we did on it, the better it got and I should say too right from the jump I was like Yeah let’s look at it but it’s not gonna work for us. We don’t want to buy into a declining industry, this in secular decline, No one likes a nuclear power. but that was wrong, on a global basis. We learn that demand for nuclear power and uranium was actually growing on a secular basis. and then the next thing we learned very quickly was that in the current year we were way under producing consumption, being the global suppliers. So again, those are two great ingredients for successful investment. and so we just keep doing more work and we just continue to like what we learned about it.

Brandon Beylo: It may be stepping back a little bit, looking at markets from like you said a cyclical kind of capital cycle framework. How do you go about finding what industries are in kind of that trough of the capital cycle? Is Something is and again I don’t mean to oversimplify because I’m asking what I think is a, very entry level question because I want to know but is it as simple as saying which commodity prices down the most over the last year year to date year and a half and then going into that industry and saying Okay if corn is down or a phosphates down 60% over The past year and a half, I’ll start there. there’s probably a lot of capital not invested in that space.


Daren Heitman: Yeah, that’s a good indication that you should start poking around. We want to be just a little bit ahead of that. And what I mean by that is my colleagues and I have been doing this for 30 plus years and so we have a library of knowledge of what we consider cycle. for all these commodity industries, whether it be every commodity industry, kind of can play out differently. 

You can get volatility and demand. You can get volatility and supply and get volatility in both. It could be purely a margin cycle, but anyway, there’s always something that’s kind of a repeatable cycle that’s playing out and we monitor several dozen industries which it’s not very time consuming, if you’re already kind of understand the dynamics you just see them go up, you wait for them to come down and you act accordingly. Uranium is different because we didn’t have anything on the shelf ready to act on. So we had to ramp that up.

Brandon Beylo: How did you do that? And I guess I’m asking for the ingredients In this soup of getting up to speed. How did you go from? Okay I got to fill my library with content starting in 2016. So, I can understand and develop conviction on this idea that way, as these ebbs flow through whatever cycle. You believe, you can hold through those troughs.

Daren Heitman: Just so there’s no misunderstanding. We really only want to own these companies from the trough to something like mid-cycle. And so that’s when we’re participating and then we leave move on to the next thesis and then wait for that industry left to come back to us. but in terms of finding information, it was difficult. it was hard, I’ll give credit to Chris Gillespie for digging up a lot of stuff that was free in And the public companies were a good resource for that including In other public companies.

But then we moved on once we got really serious about it, we decided it was worth the investment to pay for industry, expertise like Uxc and in trade tech and to see what they were doing. But then there’s the IEA and wna and some of wnas information is free also. even so it’s out there but it took some work.

Brandon Beylo: And so, when you’re going through and you’re reading, and you’re learning about these companies, did you just try to go one by one through any company that kind of mentioned uranium? for instance, I’ve got a watch list and in Coiffen where it pulls every security that has uranium in its description and I’m like, okay, that might be a good start to just go in with each company and see how they’re involved in the fuel cycle. What part they’re in and get maybe a bottoms up framework for the industry.

Daren Heitman: Yeah, that’s never bad idea and at some point it gets unwieldy because there might be 40 or 50 of them but if you start the biggest ones and the ones that really have a history of production, you’ll get 80 or 90% of the way just by doing that.

Brandon Beylo: And so you started with basically because that’s the cool thing about uranium as opposed to An industry like Copper where there’s thousands and thousands of producers. And I know the production domesticate or basically comprised of three, main countries like Chile Peru and things like that. But with uranium I mean really you can narrow it down to six producers and of those. It it’s like Cameco because as a problem and CNG or something like that and you pretty much Have like you said, the 80% right there in those three companies.

Daren Heitman: And then ARAN would be throwing in there but it’s not a publicly traded stock yeah so That’s one indication. What the opportunity is is that’s all the marginal producers had gone away because it been such a tough market. So yeah, that’s where we started and I can’t forget what the question was embedded in that statement I got off track. Sorry about that.

Brandon Beylo: no, no just I was just commenting on how when you start from, each company the cool thing about uranium is there’s not many To go through. It’s really just three or four and that’s on the supply side.

Daren Heitman: And that’s what we care about. that I got distracted from my main point that is why it’s an opportunity because all the marginal suppliers went away. But also made a challenging for us because We didn’t want to take a lot of speculative risk. And the fall off in other use a general word quality, which could be misused but the fall off from came ago. to the next, kind of quality investment opportunity was really steep, because I’m problems of fine company but there’s geopolitical risk and we concluded that and 18 19 even for Russian invaded Ukraine. So, yeah, it’s the universe of investable equities is pretty small.

Brandon Beylo: When you look at the supply side of this supply demand equation, there’s a couple key questions that come up for me What is the supply outlook look like over the next three to five years in terms of growth stagnation. And then one question I have is just How do you determine secondary supply in this industry? Because first of all the pricing is very opaque from what I’ve read. it’s not like copper, you can just go and buy a futures contract and there’s millions and millions of contracts. So it’s a very opaque pricing market but then you have this secondary supply which is utility stockpiles military stockpiles and all these shadow pounds that traders have and things like that. So how do you reconcile that secondary with maybe your primary estimates?

Daren Heitman: So I’ll start with what the outlook for supply is and from our standpoint being bullish on the price of uranium going forward, we would describe the potential growth and supplies limited. So let’s start there, it’s going to grow and that’s in response to the price increase that we’ve seen so far. But we don’t think that that incremental supply is going to come on fast enough to head off. What we see is a real supply crunch in the mid 2020s. Secondary supplies its own topic. It’s very confusing. And it is an odd commodity in that there’s so much of it. So if I’m talking to somebody who’s new to the concept of primary supply and secondary supply and you didn’t find it. So I will very quickly just point out the primary supply is what’s brought out of the ground every year. And right now, that’s like a hundred and we’re expected to be around 150 million pounds going forward or in the next 12 months say in the secondary supply. Is this? We don’t consider inventory, drawdown, secondary supply. So let’s get that out of the way. I mean that that’s Drawdown, so that’s different. And It’s really important data series to understand, but it’s secondary supply I think, If I’m just introducing the concept of secondary supply to someone, I say, just think about term as recycled material. So it’s material, it’s fuel. that can be used, but it’s not gotten out. it’s not coming from the ground that year.

That’s not what secondary supply is exactly. But it helps somebody get their head around So we really had to dig in. And again, I want to give credit to Chris Gillespie for doing the work and helping me understand it, what secondary supply is. But we haven’t estimate for what we expect to be going forward. And we can get into it this podcast or you could follow up podcast…

Brandon Beylo: Let’s dive into it. I got all the time in the world.

Daren Heitman: All right, so let’s talk All right, So now we got to get into the fuel cycle. So this is really, really important in terms of supply and demand. So, I’ll give the conclusion first. The Russian invasion of Ukraine was very important in terms of its effect on the fuel cycle and overall supply and demand. And I’ll go back and define the fuel cycle. That the conclusion here is because of that event and the geopolitical ramifications, it was the equivalent of increasing demand for uranium by at least 15 million pounds.

Brandon Beylo: Wow.

Daren Heitman: And there are other estimates out there that are much higher than that, but that’s what we’re comfortable assuming.


Brandon Beylo: Yeah.

Daren Heitman: And that’s in a market, I mentioned earlier primary supply of 150 million pounds, so it’s kind of a demand shock of 10% of primary supply in any other commodity, I believe the financial markets would react immediately to that but this industry is so opaque so nuance that and so small that nobody really cared But they will. All right, so what is the fuel cycle? unlike natural gas, which gets shaken out of the ground and piped to utility and burned to create electricity that all happens in a very linear fashion and kind of an immediate fashion too. What’s produced this year is burn this year and that’s very simple to get your head around.

Daren Heitman: The Iranian fuel cycle is different. So you get the ore out of the ground, then you mill it to turn it into yellow cake and that’s what we care about. You 308. But that’s not what’s used as fuel.

Brandon Beylo: Yep.

Daren Heitman: So then that through you 308. It’s turned into gas, That is a chemical process, that’s called conversion. And the reason they have to do that is because then they take that gas and they put in a centrifuge and spin it to enrich uranium. That’s called enrichment.

Brandon Beylo: Got it. Yep.

Daren Heitman: And that’s a separate step in the process. And once the uranium is enriched, Then it can be used in fuel rods. And then put into a utility that whole process takes about two years. So the ore that’s brought out of the ground.

Brandon Beylo: Wow.

Daren Heitman: Today will be fuel two years from now.

Daren Heitman: I mean you can do it faster but that’s not a bad rule of thumb. So, Russia’s position in the fuel cycle was very, very dominant and important. and we not had any conflict or any disagreement with Russia, not serious, disagreements, for what 20 plus years and So the US Western utilities in general had become very reliant on Russian conversion and enrichment capacity.

Daren Heitman: In fact, you publicly available record suggests that the US and Europe, relied on Russian Conversion enrichment facilities for 20 to 30 Percent of their needs.

Brandon Beylo: Wow.

Daren Heitman: It gets worse from a geopolitical standpoint because we don’t have enough Western capacity to replace Russian capacity. So we really are reliant on Russia right now for our nuclear fuel in the United States and in Europe. but we don’t want to be. that I think the commercial this is an illegal issue or a geopolitical statement or national security statement, utilities Have reacted to the current geopolitical environment. And I think it’s fair to say they’ve all decided they don’t want to be as reliant on Russia as they have been because they know it any moment, it could get cut off.

Daren Heitman: So that’s the context. For what really matters. In Richmond, the enrichment process with Russia in the mix Russian capacity available, the world had too much enrichment capacity. There’s plenty of enrichment capacity. That process is measured Or the capacity is made by How many hours are you spending? You have six to enrich uranium. So when there’s lots of capacity, you’re going to maximize the value of the 6 that you put into that process and you’re going to spend it for as long as you need to get as much enrich uranium as you can. So here’s what changed with by trying to wean ourselves off of Russian enrichment capacity.

The West in Richmond capacity is Scarce. And so that’s what became the bottleneck in the process Western enrichment capacity so that those Western and Richards go from underfeeding. that’s the term for spinning UF6, for a long time.

Brandon Beylo: where does that come in? Because that’s a fancy catchphrase.

Daren Heitman: [In underfeeding] hey use less UF6 to get the same amount of enriched uranium. but that’s because capacity was plentiful. Now that it’s not plentiful, they need to maximize the output from the hours that they have available and is spinning in the centrifuge. So they’ll use more you have To get the same amount of enriched uranium. So that took me a long time to get my head around it. So if any listener doesn’t quite get it the first time, that’s understandable. but the conclusion is, it’s increased demand for. You have sick which cascades back to increase demand for you 308 And we think globally. It’s at 15 million pound impact.


Brandon Beylo: So then how does that kind of theory on the fuel cycle and the enrichment process? How does that guide your supply forecasts over the next? Call it two to three years. So let’s say, it takes 15 million in supply, think of it as a 15 million pound supply hut. But what are the probabilities that maybe there’s some part of the enrichment process that comes back online so you don’t have to use as much and that reduces the supply Hit that Russia took off the market and then If things get worse How do you model, if this enrichment process stays for it is or it’s worse like that 15 million pounds goes to A 20 or 30 and then that adds to the deficit.

Daren Heitman: Yeah, I think we look at it as In the near term. Meaning the next few years it’s just incrementally positive from our thesis standpoint.

And it’s it’s very likely to unfold that way and if it doesn’t we still have a supply deficit. So we don’t see it as a potential risk or a thesis. We’re not relying on That there will be incremental enrichment capacity in the West and it could come on as soon as the late 2020s, but that won’t but that’s not going to be a problem for our thesis. So even when that happens and Overfeeding goes away and that 15 million pounds, that we discussed, is no longer demanded the mark that might help the market come back into balance. It’s not going to create oversupply.

Brandon Beylo: Just so I can kind of wrap my head over feeding. Is equal to expanding the deficit. And underfeeding is Adding pounds to the market Reducing the deficit, all else equal is that correct? Or is it the other way around?

Daren Heitman: Yeah. No, that’s directionally correct.

Brandon Beylo: okay, so think of overfeeding as you’re putting more U306 into the fuel cycle, to make this equivalent amount of uranium and then under feeding is you’re using less to make the equivalent amount all else equal Okay, sometimes I just got to say things out loud with stuff like this that’s complicated because I can read it, but then I have to bounce it off of somebody. So you look at. So that’s kind of one part the supply side. But the other part is you’ve got these, 10 mines right now that are mix of call, it open pit underground and in sit, you leading. 57% of global production comes from these top 10 mines at least as of 2022. How do you model and do you model on a mine by mine basis? Since these are so large as a percentage of production? How do you go about modeling those mines and plugging that into your supply equation?

Daren Heitman: Yeah, I’m glad you asked, because we don’t really try to add any value as geologists. I mean. So, We rely on the industry. Consultants to have that reasonably accurate and that being the production from these existing mines. And then we know what the brownfield mines are any mine that’s been in care and maintenance and in idled, They’re out there too and they’re all part of the cost curve. So we could take that face value. And what we like so much about this thesis is that there’s so much room for error. 

I’ve told people that I don’t think I’ll ever see a commodity with this big of a supply and demand gap without a reasonable explanation, how it’s going to close and we just don’t So the point is that those mine by mine estimates don’t have to be exactly right for our thesis to play out.

Brandon Beylo: It’s funny about that and I’m glad you brought that up is before kind of exploring uranium. I spent a ton of time on copper And copper. If things play out, and say if we remotely get close to net, zero 2050. I don’t think we have the capacity. I don’t think we have the infrastructure but suppose we get Close.


Copper seems to me like, the only other commodity that has a chance of having such a wide gap between supply and demand. However, what I like about the uranium thesis and I’ve said this with Alex, my partner Macaropsis Uranium is kind of like everything you love about copper. But with a price agnostic, buyer on the other end, that is more versus Capex-driven. And when you think about it, like that, it becomes very, very attractive. Just from like you said, an investment thesis perspective,

Daren Heitman: Yeah, I agree with that. We get asked about. A lot of other commodities that have that wedge the supply and demand wedge. And the big difference is we see it is that the demand growth that’s built into Those supply and demand. But it is what you write and it’s all based on. projections of electrification basically, whereas Our demand estimates are based on nuclear power plants that are in operation and they’re currently under construction. So that demand seems more visible to us.

Brandon Beylo: Yeah.

Daren Heitman: And as you said, it’s nothing different but in this context is very likely that the fuel that the consumption estimates are going to be accurate. And then where’s other count commodities? The demand outlook is much less certain and in some cases I mean they can’t even be real. I think that’s what you’re getting at too. I mean they can’t happen. One other distinction that we don’t think we’ve talked about yet. so, it depends on when you’re talking about copper or some of these other commodities that had that huge wedge.

A lot almost over the last five years, we’re almost always talking to people when those commodities were trading at prices. They’re above the marginal cost production. And that’s what’s so attractive, or has been. So attractive to us in uranium, is it? You had the wedge plus, you had a commodity price, It was way below the economic incentive to produce.

Brandon Beylo: Yeah, no, that’s exactly correct. Because I think at one point What was it like after? I don’t know if it was after Fukushima, but It got down to what nine dollars a pound or something. And at that point, what was the marginal cost of production and how has that evolved over time since call it 2011?

Daren Heitman: yeah, the price peak that Around 140 in 2007, it was still very healthy. It came off that boil in 2010 and 2011 Prefukushima, but it was still very healthy.

Then Fukushima hit right after that bull market. So there’s a lot of production in the pipeline and the demand look really stable. But then Japan took 12% of global demand off the market and commodity can survive that. So from there, the commodity, it didn’t collapse, surprisingly, it didn’t hit it, slow in 2012 or 13 actually bottomed. I think it’s 2016 around the upper teens I really should say 20.

Brandon Beylo: I wonder why it took so long because you’d think with that huge of a demand hit, you’d have a pretty and by instant, I mean within the year, right? You’d have a pretty immediate price response but I guess is that a function of the opaqueeness of the market

Daren Heitman: Yeah, I don’t have a good explanation for why I didn’t just collapse right away, but I think it’s a good opportunity to bring up the Explanation of How This Market clears. And so I mentioned natural gas before and I know that utilities have contracts for natural gas, but you can see how that market could in a spot mark. So most commodities clear More in a spot market. than So, with uranium utilities get Around 85 or 90% of their consumption needs. Under long-term contracts. And so that’s the economic clearing price that we don’t always see, because those are privately negotiated transactions.

They could be for utilities needs for the next 10 years. what in it now utility will have their near-term needs.

Brandon Beylo: Okay.

Daren Heitman: Covered almost a hundred percent and then going out, 10 years, maybe their fuel requirements, only covered by 20%. but they’re always constantly covering their future fuel requirements. And so that makes the spot market less important in the utility industry. And a little bit.

I guess the point is that you don’t have the sellers and the buyers having to participate all the time every year in that market. And so the price doesn’t always reflect reality.

Brandon Beylo: Yeah, I was watching a video with another, Popular Uranium Bull and he was talking about the spot mark and he was like, Yeah, sometimes it’s just people throwing bids and asks up there and they’re not even real. That’s just to kind of fish to see what’s out there, which is just again, it’s so different from copper, silver, where you go out and the bid in the ass cuz the ask and the spreads are maybe a couple cents depending on the contract.

Daren Heitman: Yeah. This has been an education for sure. It’s been fun and sometimes frustrating but always interesting.

Brandon Beylo: Yeah, I want to stay on the supplies. just a little bit more in terms of getting an idea of how you think about the probability of supply distributions. And so a good example of this is let’s see the recent news with Cigar Lake and the issues that they’ve had there and just production cuts that have come down from both. I think it’s chemical going because as a problem just saying Hey it’s gonna come in lower. When you see those estimates, do you then go in and say, Okay let’s assume production cuts are legit and they stay around for the next six to 12 months and then you lower your production guidance. And you’ve got this adjusted deficit and is that kind of how you do it or you just say, Look like these production cuts like it’s probably gonna be a one-time thing. We’re just gonna assume some sort of higher production to bake in a margin of safety on the deficit.

Daren Heitman: So we do have supply estimates for every year, going out. And What we like about the thesis is that we can assume everything goes right from a production standpoint and they’re still not enough supply. According to our models.

Brandon Beylo: Yeah.

Daren Heitman: And that’s going to occur soon enough for it to matter. we don’t have to wait till 20 30 or 20 40 for it to happen. So, we do account for all that disappointing news and we’re not surprised. So when we put this model together, we’re not minors. And we’re not experts in mining, but we know that in business and especially in mining things go wrong. You so all those estimates are based on best case, scenarios And then never happens. So things cost more and take longer than anybody ever anticipate. So that just makes the thesis more bulletproof from our standpoint.

Brandon Beylo: and then on the topic of supply, when you model out, Are there any new supply sources that you see coming online Certain prices right along the cost curve. So maybe at $100 a pound. Uranium, you have, and I’m just throwing random numbers out. You have another five million pounds of supply at 120, You’ve got another 15 20 million pounds of supply. How do you think about that? And then the problem and then again, going back to copper stuff like that. you have a lot of, pipeline mines, but, for a fact that 90% of those are not gonna get built within the time they say. And if they do the costs, For those projects are going to skyrocket by the time, they actually get shovels in the ground and picking out the mine.

Daren Heitman: Yeah, for So you mentioned that we know we as a group all the idled mines are and we also know what all of the Likely. Developed mines will be going forward. And so then it’s a matter of. How do you stack? Those incremental mines the big one which we can name is next Gen. I mean, that’s a monster. If they can produce anywhere near what they are telling people, they could produce that. And there’s really doesn’t seem to be any controversy around the geology and the resources that are there. but it’s gonna take time for that mine to get up and running, And so we have our estimates what best case will be but I think everybody agree. It’s late 20s. at the earliest, I mean, I have seen 2026. we don’t think that’s going to happen, but

Brandon Beylo: Yeah.


Daren Heitman: We can again the supply and demand model that we’ve built and we stand that capacity coming on when we expect it to come on. But that’s the big one. I mean, that would feel a lot of that Phil Big hole.

Brandon Beylo: How much are they estimating, by the way? I don’t know off the top of my head. But just a ring.

Daren Heitman: Yeah, this might be an exact whenever I think about next year. I think 25 million pounds per year.

Brandon Beylo: Wow, so that is significant.

Daren Heitman: Yeah, it’s massive and low cost. China has low cost what? They might be saying, but not that they’re dishonest, but I said, things are never as good as what you plan.

Brandon Beylo: And so of those new supply mines what regions should like someone like myself be looking at I think, What is it the athabaka or something? I might be getting that wrong. But  there’s one or two regions. And this is a theme with uranium. there’s one or two, everything’s highly concentrated and it makes it nice from a supply side just focus on these two regions, these 10 companies, these eight countries … 

Daren Heitman: So that’s going to come down to an investor’s risk tolerance. But let’s talk about it because it’s really relevant. So they went from being a minor producer in the early 2000s to be in a 40% supplier of all of global uranium. And their low-cost producer as well.

Brandon Beylo: Wow.

Daren Heitman: So, they really changed the market structure quite a bit.

Daren Heitman: This. So, you could. So I know a lot of people, we them because of that profile, low cost producer dominant market share. Now, we think that the market is obviously bifurcating now,…

Brandon Beylo: Yeah.

Daren Heitman: maybe that’ll change but maybe it won’t. We’re assuming that the Western utilities Increase the share of fuel that they get from Western suppliers. And so it’s not that they’ll cut because not a problem. To zero. But they’re probably not going to incrementally. Give to that improm more share. In fact, we would expect it to go down and problem is probably going to shift that supply to China. it’ll go east instead of West. So the market is generally a global market but To the extent that Western. Producers gained shared, they’re going to be higher cost producers. In general. And so that drives up to cost curve. Right. So more directly you have Canadian producers, it’s the Athabasca Basin which is very proven To be a source of uranium and a decent cost.

We have uranium in the United States and there will be production in the United States. Again, probably never be 40 million to get pounds per year. Again like it used to be but it’ll ramp up and so you can have production or have exposure there. Africa’s can be interesting but there’s high cost producers. So if an investor is comfortable with the sovereign risk and then being that far out on the cost curve, that could be very interesting. And then of course, Australia has resources, there are a lot of minors there. I guess in general, uranium is not hard to find. Globally, but still costs money to get out of the ground.

Brandon Beylo: Yeah.

Daren Heitman: But having said that it’s worth pointing out that China is a large and growing source of demand and by 2030, they’ll be the largest consumer of uranium and they cannot so so far they haven’t been able to produce much uranium domestically. So they will always be an importer of uranium.

Brandon Beylo: Got it. No, that’s helpful because you mentioned because at a prom went from call it a marginal, small producer to 40 million pounds. Are you worried that another producer could do something like that. a smaller, one comes in and then their production and all of a sudden supply 10 to 20 x is relative to that, I guess, what are the odds? Another gazada problem happens.

Daren Heitman: Yeah something of that scale. Seems very unlikely going from almost nothing to 40% share.

Brandon Beylo: Yeah.

Brandon Beylo: So, how did they do that? Did they just have a huge land package and just kept digging and kept finding it or

Daren Heitman: That’s a good question. I guess I haven’t studied it. I know what happened but I don’t really know why but it kind of is and I think that why people look at is Becca Stan and…

Brandon Beylo: Mm- Okay.

Daren Heitman: I think maybe the same thing could happen there. from what we know, it won’t happen at that scale, but they could potentially expand their capacity. I guess let’s go back because I think that’s some people that are less bullish than us that believe that because Kazatomprom can go from say 55 to 60 million pounds of production to 80 fairly easily and in fairly short order we were skeptical of that but that’s something we worry about and we watch. So we’re not ruling out possibility that somebody can ramp supply. And we’re very sensitive to that. I often say, I mean this is a supply story, the demand outlook is great so don’t give me wrong. but we’re bullish because there’s not enough supply. And so as soon as it looks like there’s gonna be enough supply, we’re going to be about this bullish. 

Brandon Beylo: Are you confident in Kazatomprom not growing as fast as maybe, bears or people that aren’t as bullish think because of the traditional high cost inflation cost curves or rising. And all the easy uranium has been mined already. And so what’s left is way harder to get way more expensive and requires a hundred plus dollar a pound uranium.

Daren Heitman: That won’t be the case because Kazatomprom will find incremental uranium But they have a depletion rate that they have to address so it’s not so yeah, they’ll find uranium but some of that’s just offset, they’re depletion. And they’re in a joint venture with Russia. To develop a large new mine that will produce significant amount of uranium. But now you have to overlay that geopolitics a little bit. Say okay, even No matter how much capacity because they still have to sell it on the market and extent the West doesn’t want it. there could be limited demand for it. so they deaf. There’s almost no scenario in our mines where they set the marginal price, where they’re the marginal producer, but there’s the extent, they’re producing a lot, it pushes the cost curve to the left and so just makes your aiming a little bit expensive.

Brandon Beylo: How do you think about resource nationalization? And metallic nationalization is something that I’m focused on where? You’ve got this shift from globalization to everything’s reassuring. Trying to secure all the supply in house. Make sure home countries good. How does that affect the supply?

Daren Heitman: I think that’s most relevant. In our speculation of how China thinks about it. And we have one, good data point with China, where they developed a mine and Africa. And it ended up being a very high cost mine and it produced less on an annual basis or took longer to ramp up than they expected. So it would have been a disaster. but, They probably didn’t care because they need uranium and I don’t mean to be flippant because, it’s a large country and they’re a lot of very smart people but in the end they have natural policies. They’re going to pursue and it’s not going to be driven by solely by economics. it would be for privately owned company and then the United States.

Daren Heitman: but to the extent that they want to expand capacity, it’s not like they can do it in the dark, these things are very visible and there are no big projects That are being developed by state actors that aren’t sensitive economics? I mean right in Russia would phone in that category too. So the industry knows what’s happening on the ground and the supply.

Brandon Beylo: I appreciate you letting me pick your brain on the whole supply side because I think that’s where there’s a lot more moving parts I feel in supply than in demand which isn’t always the case for a lot of these commodities, by the way. So let’s shift now to supply though. Because as I mentioned earlier, uranium is that interesting commodity where it seems like you have a price agnostic buyer and it seems like the u308 and this is a very loud talking point from the bulls is 308 is such a small input cost to running a power plant that uranium could go from 60 pounds to 120 andPower plant utilities have to buy. Then they’re gonna buy because you can’t shut down a power facility. You got to keep the lights on. So walk me through how you view demand we can start maybe with the utility companies and then move to what I think is a newer development in the financial buyer with a lot of ETFs, a lot of hedge funds, Spinning up basically hold codes to buy a physical uranium.


Daren Heitman: So let’s start with the price. In elasticity. I mean, I think that’s probably true in the short term but in the long term, we don’t rely on that and I do think we have a pretty good relationship with a fuel buyer. and he’s convinced us that, utilities do care. I mean, it’s not like in the cost does matter. so I guess I’m not one of the people that say that utilities will pay whatever they have to pay now maybe for one transaction they will but that’s not what drives value at these miners for the miners that are needed to sign long term contracts.

Brandon Beylo: Yeah.

Daren Heitman: Though, so over time we’re assuming that regardless of what’s going on. that there’s a lot of gravitational pull towards the marginal cost production. Which we think surround 80. Because it’s above that for absolutely, you could sign long-term contracts about that. the last cycle, there were long-term contracts signed for over a hundred dollars. That’s our understanding. So I guess I try not to get carried away by that talking point that it’s a pricing elastic, commodity it in the context of all commodities it is, I mean there’s less demands destruction. in the uranium space and probably any other commodity. but it still has to exist, I mean, over the long term, they natural gas, still competes with electricity even in this climate change regime, they still limit to what people will pay for electricity.

Brandon Beylo: So is there a price point that you have? Maybe and this could be just a guess. But a price point, where uranium trades, so high were natural gas becomes a serious substitution threat.

Daren Heitman: Yeah, taking the politics out of it. It’ll depend on where natural gas is trading as well. We haven’t done that math.

Brandon Beylo: Mm-hmm

Daren Heitman: That’s it, not from that standpoint. We know the natural gas at two or three dollars is very competitive with nuclear with everything. So I guess that’s where we’ve come at from that standpoint as opposed to where do you get demand destruction and now that you forced me to think through the reason for that is if it ever gets that point we are long gone. we have already declared victory and

Brandon Beylo: Yeah. That’s a good point.

Brandon Beylo: Yeah, no that’s definitely good point. And so when you look to model out demand as best you can like how do you bucket it right? I know there’s these. you can the one bucket that I’m kind of more? Sure of is the large utility companies, whether that’s in Japan Europe, Germany the US UK you’ve got those guys. So let’s start there and then walk me through how you model out those demands.

There’s 430 reactors currently in operation today. There’s some idle mostly in Japan that will be coming back online recently. We’ve had Life extensions, which is actually not that important to our near-term demand model. But it’s nice to see the restarts are because I restart can be an unexpected source of demand and also takes not a little bit more two or three times. The annual consumption of uranium to restart a reactor. And then from there, we know that there’s kind of on an ongoing basis between 50 and 60 reactors under construction all the time. Five five come online five are completed, come online and five new ones, get started globally. That’s net of shutdowns. And that’s a rough number, but its probably more like five to eight. so that’s as you take a point in time, you have your 430. That are running. You have your restarts that are likely to occur, and then you have the work in process. The new reactors will be coming online and there’s your demand model and there’s very little variance. I mean there’s some but it’s very visible.

Brandon Beylo: And again I mean, forgive me if this sounds stupid but is it just a factor of take the 430 and then multiply it by however many, gigawatts or megawatts. It needs and then From that calculation, you just figure out how many pounds of uranium you need for each mega water gig, a lot of production. Then there’s your demand

Daren Heitman: Yeah, pretty much and in that you can use historical averages to get there, you can and then they’re publicly available sources the track that as well.


Brandon Beylo: So then what’s the upside like Blue Sky case for demand? Is it just hey, more reactors are coming online or is it? Hey more reactors plus, we’re gonna start using more uranium plus, we need more power from each reactor sort of thing.

Daren Heitman: Near terms, three to five years. It’s a good news.

Brandon Beylo: Yeah.

Daren Heitman: Bad news thing, the good news is you could be within, a fairly narrow band of what consumption is going to be The bad news is you’re really certain within a very narrow band, what the consumption is going to be? I mean, there’s really no upside either. Because nuclear power plants don’t get built quickly. The exception would be if the industry overall decides, they want to build inventory. Which could happen. I mean there’s some cyclical mentality. In this industry that’s been displayed in the past and maybe they gets displayed again. But that’s not real demand, that’s not real consumption but it could.

Brandon Beylo: And when you say build inventory, is that going back to the supply side where they just hold uranium in warehouses for future use?

Daren Heitman: Yeah, it really would be that. So you have a utility opera in the United States. they’re target inventory might be two years worth of supply, including work in process. Maybe they’re not comfortable with their visibility of The risk that maybe they lose because I don’t prom. And in Russia as a supplier, they might be trying to build inventory to two and a half or three years. So that could happen. I mean we know it’s been in reverse for the last whatever, 10 years or since 2018.

Brandon Beylo: Yeah, and so that would increase demand and I guess the short term, but like I said, long term you would have that demand come offline because they’re drawing from their own reserves basically.

Daren Heitman: Yeah, right, but it’s worth. What’s we’re talking about the law, what’s the long term upside here? I mean, this is not part of our thesis. It doesn’t need to be, but I do believe that will probably see a fleet of small modular actors, and potentially micro reactors. each one of those doesn’t use that much uranium, but there could be thousands of them. Instead of the 90, some we have in the United States. It’s a really elegant solution To reducing carbon emissions. And potentially could be a really effective way to generate power. So, I mean, it could tick both boxes and really explode in the 2030s and 40s. But, I could be dead by then, so it’s hard for me to get super excited about that but I think it’d be very good for society, if that’s the way it plays out.

Brandon Beylo: If you were to look back, you’ll call it 10 years or if A uranium bear came today was like, Hey, you’re wrong on the demand side. what would they say? What would be their reasons for it?

Daren Heitman: It would have. I think the most likely one is the elephant in the room with that. There’s another Fukushima Yeah they don’t Let’s get that out there. These things they’re not nuclear bombs. but there could be meltdowns. I honestly don’t know what that means from a physics standpoint, but they

Brandon Beylo: Yeah, I’m thinking of a candle burning. that’s what I’m thinking.

Daren Heitman: Yeah, I think it has that name because They do have to keep these reactors cool. And so, as soon as that cooling process fails, then you have a meltdown and bad things happen. So, you could get a radiation leak.

Brandon Beylo: Yeah.

Daren Heitman: I mean that’s happened three times in since the dawn of nuclear power. and Three Mile Island was, you could argue whether that was real disaster or not, but it scared people enough to make Nuclear power unpopular for the last. What? 50 years.

Daren Heitman: Chernobyl, you could blame that on the system. I mean, even if you watched the series which I did which is really well, done is entertaining. It’s hell. But I don’t know factual is, but The conclusion was still That was a bureaucratic breakdown. Not anything wrong with the technology and then Fukushima, you could argue as a fluke and the meltdown occurred because of the diesel engine. Failing. So as a design flaw and I think the industries from what I understand has learned a lot from all those failures and the technologies keeps getting safer and safer. And maybe it’s this a good point to interject something I learned during the Russian invasion of Ukraine and people were freaking out about a nuclear accident there, You could. Crash, a jet into a nuclear power plant and it wouldn’t cause a nuclear meltdown. So I mean they’re built to withstand.


Brandon Beylo: Wow, I didn’t know that. That’s crazy. how do they build the failsafe capacity to withstand that?

Daren Heitman: I think the short answer is dozens of feet of concrete.

Brandon Beylo: So is that bullish concrete, then if we go down the value game?

Daren Heitman: And Jet pilots, I guess.

Brandon Beylo: That actually does bring up a little bit of a tangent, but it was something I thought of when I was listening to different podcasts about the geology and the geochemistry of uranium is like you can play it straight through, with the Sprott ETF, we own spot ETF u.u in so not a recommendation but that’s just how we’re playing it. It made me think of okay if this industry is gonna expand and if there’s going to be a huge deficit, there’s just going to be this growing demand for nuclear What are the ancillary ways you could play this? And are there any other antler ways that offer the same asymmetric risk reward which is where I’m having the problem? It’s like man like a symmetry just plain straight uraniums pretty intense. I don’t know if you’re gonna get that anywhere else.

Daren Heitman: Trust me, we looked and we passed on some things but I guess it’s important for me to make this distinction that we’re uranium, but we’re bullish on the price of uranium and we want leverage to that. I’m not a nuclear power advocate. I’ve had to learn a lot about nuclear power just because that’s what’s important from the demand side, but we’re not looking for ways to get secular exposure to the growth and nuclear power. So, we’ve looked at some of the SMR companies but it’s just a different game, that’s not a cyclical game. it’s a growth play and it could happen. And if you own a basket of them for the next 20 years, you might do very well, but that’s just not what we’re doing. So the short answer that we haven’t found anything with the same dynamics. It’s just the physical uranium, and then how that translates to the miners of physical uranium.

Brandon Beylo: Derivatives from a supply-demand thesis. The less conviction, you can develop around that because you just add so many different variables at that point.

Daren Heitman: Yeah, that’s our view and I think that’s why we continue to gravitate towards situations not just But any situation where microeconomics are the ultimate driver of the outcome.

Brandon Beylo: Yeah, then how do you think about portfolio size and imposition sizing something like uranium where you develop a super high conviction because I know it’s kind of funny, like, Uraniums one of the industries where people have crazy high conviction and you’re putting in big chunks your portfolio in this because it seems inevitable, that’s kind of the point. how do you think about sizing this and that disciplined or undisciplined manner based on, your beliefs?

Daren Heitman: Yeah, its Risk tolerance is so personal. I don’t think there’s an answer for that. I can tell… what we’re doing. From a firm standpoint, I mentioned that our flagship strategies, it’s just a concentrated small cap value strategy, and our guideline is we can have up to 20% exposure to any one industry and I would. So this is one industry, highly correlated didn’t get much more correlated than a physical commodity so we own three uranium miners in our core strategy and they add up to just under 20% weight and we’ve been running at that, Max for Probably four or five years.

Brandon Beylo: Got it.

Daren Heitman: So that reflects our conviction and then we launched a standalone strategy and then we had another 12 or so Equities to that Which we will shut down when this cycle is over. I personally, had what might be considered any responsible exposure to this both professionally personally but the conviction is just really really high and that it just seemed like Yeah, I mean, you can get in trouble with this. That’s why you better know what you’re doing. And you can’t get to afford to lose money, which maybe I couldn’t. But nevertheless.


Daren Heitman: Yeah, it’s a heart. That’s a much. I’m probably not the best person to answer that because I’m institutional level, not financial advisor.

Brandon Beylo: it’s a very tough question but one, I like asking just because it shows both, kind of skin in the game but also how one thinks about risk and how they think about managing risk. So daren, This was a great conversation. I learned so much about the demand side, the drivers, how you view the market. And just, where potential, red flags might be for uranium bulls. So I’m really looking forward to publishing this tomorrow. If people want to learn more about, you get in touch with you and what you do. as areas, where can they go to find you?

Daren Heitman: We have some information on our Azarius website, We’re not really geared, to service retail, individual investors, but if you’re curious about what we do and why we do it, you can find information at and We do have a Twitter account, we’re not very active, but see what other people are saying.

Brandon Beylo: And Daren the last question. I ask every guest and I didn’t send you an outline before. So this is gonna be new. You haven’t had time to think. But if you could have dinner with one person from the past, or the present, who would it be and why?

Daren Heitman: Wow, probably Ben Franklin from the past. I mean I’m not a huge American history buff but I’ve read enough over the years to think he was probably both a lot of fun intellectually challenging and wise So I think that combination could end up being a fantastic dinner.

Brandon Beylo: Yeah, that’d be fun. Awesome. Daren thanks so much for coming on the show man.

Daren Heitman: Yeah.

Brandon Beylo: I appreciate you kicking off my deep dive into uranium on this podcast and look forward to talking with you more and best of luck at his area. And, hope this cycle treats you well,Daren Heitman: You’re welcome. I appreciated the opportunity to talk about it and had a lot of fun doing it. So thank you.

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.