Taking Stock: The State of Play in Uranium, Bitcoin, Battery Metals, Gold & Silver
Taking Stock: The State of Play in Uranium, Bitcoin, Battery Metals, Gold & Silver
While hosting three investment conferences in two days can be a logistical nightmare, we find it always leads to surprising conversations and a unique cross pollination of ideas. Last month’s conference marathon was no different and we came away with an excellent sense of sentiment in industries as disparate as uranium, gold, battery metals and bitcoin, along with unique stock specific insights.
To help you quickly separate the noise from signal, below are key takeaways from each conference interview.
Grizzle Uranium 1x1 Conference
Harris Kupperman, Founder & Chief Investment Officer | Praetorian Capital
There’s a stark demand / supply imbalance in uranium, a 50 million lbs deficit that will not rebalance for the next 2 years.
Spot prices won’t affect utilities, as uranium is a small component of the overall cost of production.
Demand will continue to rise as China continues its massive nuclear buildout, the real challenge will be for the West to restock and onshore domestic supply.
In an environment near-term and future supply is the unknown variable, Sprott Uranium Trust has the most upside and least downside. Equities like Cameco may continue to do well but are currently fairly valued and may have mining or extraction issues moving forward.
John Ciampaglia, CEO & Senior Managing Partner | Sprott Asset Management
SPUT was discussed in 2019 and was finally formed with a thesis that the uranium inventory and secondary supplies were in danger as many globally mines were underproducing. The vehicle has had great performance, currently $5 billion NAV
Utilities are getting back to replacement rate contracting for the first time in over a decade, utilities will purchase 150 million lbs this year, Sprot anticipates the purchasing cycle will accelerate.
Transparency is a priority - Sprott produces a NAV for uranium daily, and reveals its purchases, with the goal of stockpiling U3O8 and issue new units to the market when the Trust trades at premium to NAV.
As the supply and demand thesis plays out, interest amongst institutional investors is broadening from niche tech and energy transition hedge funds to the larger market, looking for an efficient vehicle for exposure to uranium, which has unique dynamics compared to other commodities.
Corey Dias, CEO & Co-Founder | Anfield Energy
“Hub and Spoke” is an ideal production strategy for Anfield as the company begins production during the uranium cycle. Their “spokes” are their mines: West slope, Slick Rock and Velvet Wood which will be fed by their “Hub”, Shootaring Canyon Mill - one of two of the only fully licensed and permitted conventional mills in the U.S.
Anfield has purchased and will refurbish an existing mill, shortening the time to production to 2 years. In comparison, building a new equivalent mill (producing 750 tonnes uranium /day) would cost +$200 million, and take 6 to 8 years to build.
The 50 million lbs supply deficit may persist for many years, with dependence on foreign entities to provide yellowcake. Even if domestic suppliers were able to come online today, U.S. could probably get to 20 million lbs capacity in the near term.
The company is looking forward to significant milestones; an updated Preliminary Economic Assessment, as well as expanding the mill from its current 750 tons per day to 1000 tons per day, peak production estimated at 2.5 to 3 million lbs per year.
Dr. Rebecca Hunter, Vice-President Exploration | Forum Energy Metals
Dr. Hunter brings a great track record in uranium exploration and guides Forum in taking a systematic approach to the Thelon from baseline up - applying geophysics to drilling to enhance their ability to identify the best targets.
The company foresees that a maiden resource estimate could be initiated in 2 to 3 years.
The zone is largely unexplored; only 200 metres of the 1.5-kilometre-long anomaly has been drill tested.
Moving forward into 2024, the focus is resource expansion; the Tatiggaq project will comprise 75% of the budget to build the resource. 25% of the budget will be used to explore/chase other high-potential resources.
William Sheriff, Chairman | Nuclear Fuels
Nuclear Fuels was started with the acquisition of ISR assets from Encore Energy, with the Keystone Property as the marquee zone. Encore is the largest shareholder at 19%.
The property is largely unexplored, since activity ceased after the Three Mile Island incident (40 years)
Unlike many juniors, the company has a clearer path to profitability Energy Fuels buy in for 51%, by paying 2.5X the expenditures incurred by Nuclear Fuels if certain thresholds are met (e.g. 10 to 15 million lbs), carrying the company to recoverable production.
They believe that in this cycle, ISR (In Situ Recovery) production assets in agreement states are the most efficient, with Wyoming providing a historic resource – tied in past plans to make nuclear power a major source of American energy.
Bruce Lane, Executive Director | GTI Energy
GTI has over 2,400 claims, with a substantial footprint and has been drilling at their projects for +3 years.
The companies’ Wyoming project has a resource of 5.6 million lbs at an average production grade 630 ppm. There’s an exploration target of an additional +10 million lbs, and GTI is currently looking for higher grades at deeper depths.
The geophysics and mineralization is high potential in the NE zone.
GTI views ISR as the ideal method for drilling from a ESG perspective, and a low CAPEX. Drill targeting and permitting for the Green Mountain project is a near-term milestone for the company.
Doomberg
Doomberg observed a “reconciliation of physics” and the green movement where a sea change is occurring as more institutions and global jurisdictions are recognizing nuclear power as a source of clean green energy and a key component of NetZero ambitions.
He believes multi-party systems foster underserved influence to fringe political organizations and leave the secular majority without adequate representation.
Doomberg addresses the flaws of levelized electricity – fails to account for intermittency, ignores value deflation, ignores systems costs (land use/energy density), transmission costs, limited to new builds, and is open to manipulation (battery costs etc.)
He believes that sanctions re: the Russia/Ukraine war doesn’t work. Instead, assist Russian oil and gas and flood the market which lowers prices, thus damaging the Russian economy far more than sanctions could.
Leigh Goehring, Managing Partner | Goehring & Rozencwajg Associates
A good way to gauge the uranium market is to compare the bull market from 2002 to 2007 where the price went from $9 to $140/lb, Leigh believes we’re in the 3rd inning with current prices around $80.
The company puts out a framework that points to a continuation of the uranium bull market – renewables will never solve the climate crisis. The only solution is nuclear (the U.S. pledge to triple uranium production over the next 25 years).
The structural deficit between supply and demand will continue to grow, bolstered by the incredible global demand for nuclear, for example displayed at COP 28.
Leigh provides insights comparing Small Modular Reactor technology and the EROI superiority of sodium-based reactors (Terrapower vs Nuscale)
He believes oil is moving into a structural deficit to a must-own investment; LNG is his favourite trade
Grizzle Battery Metals 1x1
Tracy Shuchart, CEO/Founder and Chief Market Strategist | Hill Tower Resource Advisors
The silver market has several demand drivers: photography (2%), silverware (6%), jewelry (27%), with the largest being industrial applications (solar panels, automotive batteries, health care). The market is unique as silver is both an industrial and precious metal.
The gold/silver ratio is out of sorts, with the potential for silver to run as demand is continually increasing from industrial applications.
Fundamentals currently imply a “squeeze”, the deficit in supply that is being created outstrips the sum of the 11 years of surpluses. In a high rate environment, financing for mining projects becomes even more difficult which will further reduce overall supply.
Automotive is the most underappreciated demand driver, as the world moves to green technology, more electrical components require large amounts of silver for soldering, and manufacturing which makes a silver a bullish commodity of the future.
Mark Selby, CEO & Director | Canada Nickel
The nickel market is currently experiencing a selloff ($20K/ton - $15K/ton). Once a new cost floor is established, a resumption of increased demand from steel production and electric vehicle (EV) manufacturing. Despite news of slowdowns, nickel demand and EV sales are up YTD.
There are few sources of supply that can come online within the decade; this underpins the overall investment thesis for Mark to have most of his investable net work in the nickel space.
The company’s Crawford project is the world’s 2nd largest nickel resources. The site is a n old mining gold mining district with access to infrastructure, and a substantial workforce.
Their recent prefeasibility study has Crawford at +2.6 billion US, with the company’s market cap at 105 million. Their carbon capture technology makes Crawford a net negative project, -30 tons of CO2/year, while foreign competitors produce 50 to 60 tons of CO2/year. The company believe they are in the early stages of unlocking a global nickel sulphide district, as nickel resources are onshored.
John Ciampaglia, CEO & Senior Managing Partner | Sprott Asset Management
The difference between the new commodity cycle (2000s) and the new one is the growth of China -infrastructure buildout led to incredible returns. This cycle is driven by the energy transition covering battery metals.
The 3 components are: 1) desire to produce clean energy 2) greater electrification 3) electrification of transportation
Sprott’s ETFs are upstream focused and key in on “pure play” exposure to battery metals and lithium – all of the firms have +50% of their revenue/asset base that’s tied to actual metals.
Institutional investors have taken a slower approach to investing in these commodities but will increasingly diversify their portfolios with battery metals; the U.S. is lagging behind other nations when if comes to EV adoption, which will continue to drive demand.
Christian Easterday, CEO & Managing Director | Hot Chili
Hot Chili’s main site is the Costa Fuego project – the largest scale copper developments in the world outside the control of the majors; the lowest elevation copper project in Chile, near the ocean with water permits.
It took the company about 10 years to secure its Maritime concession to extract sea water from the coast, which is a key step in de-risking a large-scale copper project.
Glencore is a major shareholder at 9%, a very knowledgeable partner for constructing projects. Hot Chili has some 160K tons of annual copper concentrate that is non-committed, with a significant interest from other global offtake partners in the Japanese, Korean and global markets.
There are two mineral resource upgrades planned over the next 1.5 years, with the expectation that the resource will be above the current 3.4 million tons. The company is fully funded for the next 18 months.
Aurora Davidson, CEO | Amerigo
Amerigo has a unique business model – the company produces copper from the tailings waste of El Teniente, one of Chile’s largest copper mines (fresh tailings). The company also has rights to historic tailings deposits deposited decades ago by El Teniente.
A key advantage for Amerigo is that the copper concentrate produced is indistinguishable from the traditional mining process and sold at market prices with royalties paid. The company avoids all the processing and risk in owning a copper mined and the environmental responsibility therein. A copper factory.
El Teniente’s expansion plan has the goal to secure 50 more years of production at a processing rate at 137K tons/day.
Amerigo’s 4 approaches to risk management: 1) avoid risk 2) accept risk 3) mitigate risk 4) transfer risk. The company gave a short case study from their recent flooding issues, how they assured operational continuity and returned to full production.
Mark Brennan, Executive Chairman & Founder | Ascendant Resources
Cerrado Gold has increased their production by about 300% in the last three years, going from 20K oz to 54K oz last year; one of the lowest cost producers in Argentina.
The new Argentinian government has caused a cost control shake up, the company believes that the peso’s long-term value will rise - new investors/capital will come to the markets and mining industry.
Their pre-feasibility study for their Brazil site, reveals that the company will generate more than 13X their market cap and free cash flow over the nine years of the project.
The deep value of the company is disconnected from the underlying commodity, a significant milestone for Cerrado, is the upcoming announcement of major international bank with the lead arrangement for the UKF funding facility with success-based fees.
Blake Hylands, CEO | Lithium Ionic
The company has the advantage of operating on of the most prolific regions in the world for hard rock lithium, with a friendly state that can permit and put projects into production compared to other jurisdictions.
Another advantage is its tremendous infrastructure with access to power, paved roads and a strong labour force.
Their recent preliminary economic assessment: (20 year LOM, 14 month payback, 120% IRR post tax) used a lithium price of $1,850. The AISC in the project is $500 to $600/t, which puts it at a high margin fast payback.
Sigma Lithium’s project is a great analog for Lithium Ionic. With a $200 million to $4 billion valuation gap, with a 1 km distance and the same geology, Sigma is a great proof of concept for Lithium Ionic’s development.
Adam Webb, Product Director | Benchmark Mineral Intelligence
BMI analyzes the lithium, nickel, and cobalt markets and does demand and price forecasting for those minerals. Lithium demand is expected to grow 4X in 10 years, nickel and cobalt to double over the next decade.
Although growth in the Chinese EV market has been slower than expected sales in China were at a record high in October.
Taxes and subsidies for EVs are important, but government phase-outs of EVs, and emissions standards, EV charging infrastructure rollout, and improving production efficiencies are key.
The three metals covered by BMI are forecasted to be in a surplus until 2026 to 2027, due to a production ramp up in Indonesia, and the Democratic Republic of Congo. ESG
Battery chemistries will improve efficiency over time, especially with lower range vehicles, but will take time to scale-up into the supply chain and make an impact on the cost, efficiency etc. of EVs
Robert McEwen, Executive Chairman & Chief Owner | McEwen Mining
Funding has been scarcer in this cycle than in past cycles. If the industry can shift to focus in on prevailing trends, perhaps it can access some of the $22.5 trillion invested in impact funds and ESG.
There is going to be a lot of competition for labour in the mining industry, with a decrease in students in geology and a retiring workforce in the Western world. In preparation for this, the company is planning to make a employee onsite hotel-like residence, which produces its own food and is an attractive tourist destination to redefine the image of the mining industry.
McEwen has several upcoming milestones, with increasing production on their properties which is reducing costs, driving towards a feasibility study, and forecasting high-grade copper drilling results.
Robert McEwen has $220 million invested, owning 17% of McEwen mining and 13% of McEwen Copper.
Grizzle Hard Money
Warren Pies, Cofounder & Strategist | 3Fourteen Research
The 60/40 portfolio will change as the relationship between assets changes – with stocks and bonds moving together with a backdrop of inflation. As bonds are no longer driving portfolios due to economic weakness, more capital will flow into hard assets to hedge/diversify.
There are secular tailwinds for energy, which will perform counter to stocks and bonds. So to counter volatility it should have double the weight of the market in one’s portfolio.
High quality Canadian oil producers have been a strong component of their theme since 2021, preferring equities over the actual commodity.
Oil has been rangebound, and the play has been to watch hedge funds when they are overextended on the long side or the short side, investors should take the opposite view.
Bob Elliot, CEO & CIO | Unlimited Funds
Crypto is an idiosyncratic asset that trades as to whether there is widespread adoption, the real question is if it starts trading like “digital gold”, and subject to macro drivers.
There are rate cuts priced in by March, gold is not an interest rate bearing asset and will perform weakly when interest rates are high, central banks are buying gold over bonds as it’s a physical asset that they can hold and control.
Geopolitical risks and demand are what’s driving the gold price – when central banks transfer a small amount of capital from bonds to gold, it can tremendously move a smaller market like gold.
The most liquid store hold of wealth is still US dollars, actors like Russia and China are mainly interested in an asset that can’t be taken away from them, so gold has been a clear choice -they’ve been brining domestic mine supply and importing gold, allowing them to take gold out of the market, without transacting it on an international basis.
Shawn Khunkhun, CEO & Director | Dolly Varden Silver
Keys to success: Dolly Varden has historically successful assets, with great prospects at their Wolf and Homestake sites. Combined with great institutional backers (e.g. Hecla mining 15%, Eric Sprott etc.) the company has had a strong vote of confidence from high net worth and retail investors alike.
Both the Wolf and Homestake site have a potential of millions of oz of silver. The company is good position to be ready to produce, as gold prices move to ATHs and mining equities are deeply undervalued.
The present day has echoes of 2006, when gold was at a new nominal high and equities lagged behind the price – the main difference maker is Central Banks purchasing tons of physical.
There is a massive silver shortage – the gold to silver ration is about 80:1. Shawn believes that this ratio will come down to 30:1. As the gold price rises, silver will come into the forefront, and the end of a decades-long bear market.
Shane Williams, CEO & Director | West Red Lake Gold
The team behind West Red Lake Gold have built 3 mines, with a permitted mill with over 3 million oz in assets.
The company has decided to invest in a recently producing mine, vs. wildcat exploration, avoiding the pitfall of the time it takes to develop a mine from scratch, and matching production in time with the commodity upcycle they believe is coming.
The primary focus is to de-risk the asset, ensuring that underground mining operations are successful and a $13 million raise.
The goal is to build the next great Canadian mid-tier mine. The next year for the company is catalyst rich – fantastic drilling results from their Madsen site, a PEA in Q1 2024. Looking at the high grades and imminent production in 12 to 15 months, the outlook is great for the company as we move into a gold bull market.
Mark Brennan, CEO & Chairman | Cerrado Gold
The company has raised its production 300% in the past 3 years, from 20K oz to 50K oz last year; one of the lowest cost producers in Argentina.
The recent political sea change in Argentina will shake up currency controls and supercharge the mining industry; expectations for new investment in the region are high – Cerrado Gold has already invested $35 million in the country.
The company has done well for a startup - already generated $22 million of EBITDA; their heap leech operations should add an additional 25K to 30K oz of gold per year.
The company is very confident they will get the future funding they need to advance the projects to production – the UK government (export credit agency) has pledged $190 million for 70% of project funding, with additional funding expected from a major international bank – a catalyst to be announced in 2024. Cerrado is a deep valued mining prospect and will be able to leverage a breakout in precious metals as we approach a change in the commodities cycle.
Galen McNamara, CEO & Director | Summa Silver
High grade silver assets in the U.S. (New Mexico & Nevada) are a big part of the company’s story. Nevada consistently ranks in the top three jurisdictions in which to make mining investments in N. America (Fraiser Institute).
A Historical data and geologic modeling approach has been integral to the drilling program to date, with a keen eye on the grades (e.g. 50g/t in an open pit vs. 500 to 1K g/t in a good-sized vein underground.
Community engagement is a core pillar for the company and fosters long term relationships with its stakeholders.
There are several catalysts: the company has begun drilling in New Mexico, the company believes that the geology behind their Ruby site justifies a three-rig operation. They continue to produce great high-grade drill results, with the aim of taking advantage of the increasing demand for silver.
James Seyffart - Bloomberg LP
This is an unprecedented time, with 12 Bitcoin ETFs potentially launching in January, fighting for capital and liquidity. There is a lot of nuance, with the SEC approaching deadlines for approval; there’s a window from Jan 5th to 10th, where they can be approved, that James believes the SEC will target to maintain neutrality and not advantage one applicant over another.
James thinks that there is a 10% chance that approval gets delayed for 3 or 4 months, due to Gary Gensler and Elizabeth Warren’s anti-crypto stance. The real threat for a potential ETF is getting approval later than the competition, and ultimate failure from a lack of liquidity.
Grayscale will be tough to beat; they already have liquidity and a well-known ticker, Blackrock is the largest asset manager and ETF issuer, so they will most likely perform best in the upcoming “winner take all” scenario.
Forecasting the AUM for Bitcoin ETFs and how it will drive the price of BTC is difficult – it may be several years before compliance allows brokers and some of the biggest players to participate. Long term inflows are most important, as investors represent a subset (1 to 3%) of an asset managers portfolio, so predictions of billions of dollars are presently unwarranted.
He thinks assets into Bitcoin ETFs in year 1 could be between 10-70Bn depending on how you look at it.
Sue Ennis, VP Corporate Development | Hut 8
The prospect of Bitcoin ETFs will be bullish for BTC prices, issuers are making amendments to their filings – a bullish indicator that they are actively in discussions with regulators. Hut 8 is one of the largest miners in N. America, so a higher BTC price will be great for revenues and transaction fees.
The company anticipates managing about 1 billion GWs of hash rate power – Hut 8 also holds over 9K Bitcoin on their balance sheet; a Berkshire Hathaway of sorts (a number of different businesses under a managed services umbrella).
Some of the trends and challenges of mining are the increasing efficiency of equipment, equipment prices decreasing, the rise of renewable power in the Middle East is affecting hash rates.
The longer-term strategy for Hut 8 puts a priority on optionality, holding on to BTC makes sense as the next halving will cut supply. Resources can be used for collateral for loans for growth and deepening their relationship with partners like Coinbase, as opposed to selling while the BTC price is likely to rise.