Last year during the heat of the Extinction Rebellion protests I was at a lunch with a very wise, experienced city exec who said he rather admired the protestors and thought they were serving a valuable purpose. I nearly coughed up my food and spluttered “on what planet!”. My perception is that rather like BLM, its become easy for the C Suite to say they back these radical insurgent movements without ever thinking through the implications. This is most acute with Greta who is regarded with awe by many I talk to.
My beef is not with many of the practical necessities of figuring out how to sharply reduce carbon emissions. What horrifies me is the rhetoric and cultural assumptions of ER, Greta and all the other watermelon Red Greens. It is pure and simple ideological war fare based around a Gramscian model of steady infiltration of the bourgeoise – those of us well trained by our New Left academic tutors many moons ago will know the drill. Ask reasonable questions about say class or inequality and then smuggle in a whole ideology which rips apart the nature of truth and presupposes a radical agenda of revolution.
As I tried to articulate this to the exec I summed it up thus – “scaring the living daylights out of people and saying only a complete revolution can affect change will be guaranteed to completely alienate the masses”. In order to achieve meaningful change we need to be pragmatic and ambitious but telling everyone they can’t fly anywhere ever anymore. and shouting at country dwellers for their high carbon consumption is a guaranteed formula for failure.
More pertinently the general public have grown deeply suspicious of the Cry Wolf end of the world alarmism that emanates from many Greens. They’ve heard all the scare stories and strangely enough they don’t turn out quite like we expected. We’re also alert to the manipulation of sentiment for ideological ends. Shouting at the Third World to abandon all fossil fuels and embrace sustainable energy consumption just ends up with extensive deforestation and chronically inefficient power supply.
These and other points are made by Michael Shellenberger in his brilliant new book Apocalypse Never. I heartily recommend it. Time and time again he slays the myths peddled by many Red Greens, reminding us that the very best way of conserving our planet and feeding countless billions is to work with humanity, encourage growth and think laterally about energy policy. Lets’ absolutely get rid of coal fired power stations in the Third World but encourage them to use natural gas, which is plentiful, cheap, and efficient. As power networks become secure and supply plentiful, then we can move up the ladder to new energy sources.
But perhaps the biggest message form this meticulously researched book is that there is no way we are going to build a new grid without using copious quantities of nuclear energy. I have never understood why so many “environmentalists” are opposed to nuclear – it seems to me that we will almost certainly need a bedrock of nuclear power comprising around 25 to 45% of total output in order to make the carbon transition.
I better understand that there are practical, economics driven worries about cost but even these are misplaced. Renewables will NEVER provide 100% of all our future output. It is an engineering impossibility and no amount of battery storage will ever get us there. Which is not to say that renewables plus storage couldn’t get us to say 50 or even 60% but beyond that level is, I believe, unachievable. Thus nuclear.
We in the developed world have developed a strange phobia of nuclear power. We’ve also refused to bring in carbon taxes to help under write the economics of nuclear and we’ve also insisted – in the UK – on using a bizarre private funding process which is completely inappropriate for nuclear upfront capex. The model needs to change and pro nuclear activists need to become more vocal.
But the good news is that even in the developed world we are seeing real progress. In the US for instance the government is now offering nuclear plants a zero-emission credit in recognition of their zero carbon emissions. This helps to level the playing field against renewables and fossil-fuelled generation. In addition, having had government proposals to close them, South Korea and Taiwan have now voted to retain their nuclear power stations. France in particular has extended its time-frame for de-emphasising nuclear within its power mix (it was targeting a reduction to 50% by 2025, but this has been extended by 10 years to 2035). And we’re also seeing some positive progress in Japan. The government there is restarting its nuclear stations which though slow to get going, has gathered some pace in 2018 with five brought online. A further 18 reactors are currently in the process of restart approval, although Japan has some 54 reactors in total. Crucially nuclear is entering a period of renaissance in the developing world, and especially Asia. Global nuclear operating capacity is expected to expand from around 350 gigawatts (GW) in 2016 to around 465GW by 2025 (an increase of 33 with China, India and Russia at the forefront but other countries such as the UAE are not far behind.
Which brings me nicely to a small, relatively below the radar closed end fund in the UK called Geiger Counter, ticker GCL. This London listed fund has not had a great decade – uranium prices have been in a 10 year bear market (sparked by the Fujiyama crisis) which has had a big impact on the mid to small cap portfolio of uranium miners in the fund. The share price was down 1.8% in 2018 and 18.5% in 2019. But there is, I think, some light at the end of the tunnel. In recent months the funds’ shares have started trading higher and the fund has moved from a steady discount to a premium of between 0 to 2%. One key tailwind has been the pandemic which has, according to a research note from Marten and Co, “heavily impacted global uranium production, taking around 20% of global capacity offline, exacerbating the supply deficit and leading to users running down inventories at an even faster rate. The net effect has been a rising uranium price (up 32% YTD)…With a number of major mines currently mothballed, primarily due to the low uranium price, the (Geiger Counter fund) managers believe that little production capacity will be brought back online until the uranium price reaches US$45 per pound”. Prices are currently around US$32-33 per pound.
One key tailwind is that decline in capacity. Data from Uranium Participation Corporation suggests that supply close to 35 million lbs per annum has been removed from the uranium market since 2016. The Marten and Co report also observes that “the uranium market was already in supply deficit prior to the outbreak of the pandemic, with users running down global inventory”.
Another potential positive is that an increasing volume of demand is not covered by long-term contracts. Data from Uranium Participation Corporation suggests that by 2021, approximately 20% of demand will be uncovered, increasing to approximately 50% in 2025 and 65% by 2030 and beyond.
So, if ever there was an industry where access to a few key strategic reserves matters, its uranium. The top five producers collectively control around 60% of production, while the top 10 account for around 85%. Furthermore, around 48% of production is located in regions of geopolitical risk (primarily Kazakhstan and Russia), while the US accounted for 0.1% of production during 2019.
The Geiger Counter fund currently boasts around 37 stocks with a strong bias towards small and mid-cap uranium mining companies. One of the largest holdings is NexGen Energy (www.nexgenenergy.ca) which is a uranium exploration and development company with a portfolio of projects that are centred on the Athabasca Basin in Canada, where it holds over 259k hectares of land. Another big holding is slightly more troubling – High Power Exploration (hpxploration.com) which is not uranium related and consist of the Nimba iron ore project in Guinea. This anomaly represents just under 14% of the fund and should be dumped as soon as possible IMHO.
In terms of performance the table below nicely sums up the relatively lacklustre returns to date. According to the Marten and Co report the funds “NAV broadly outperformed the Global X Uranium ETF up until the end of 2016, when the uranium market started to turn, but has failed to keep pace since. This may be due to its bias away from the majors, which would appear to respond more quickly in a recovery. However, it should also be noted that around 50% of the URA ETF is in non-uranium stocks, which have generally outperformed uranium. This is a driver of GCL’s relative underperformance”.
Which brings us nicely to the peer group. Two stand out. The first is AIM listed newbie Yellow Cake Plc (YCA) which was established to purchase and hold triuranium octoxide. The other is a US listed ETF called Global X Uranium ETF (URA) which is reasonably large (net assets of around US$262m) and liquid as index trackers go. That said buying US ETFs is increasingly challenging for UK investors.
The second chart below shows the concentrated holdings in the fund, which charges a basic management fee of 1.375% per annum. Canadian assets are the biggest in country terms, accounting for 53% of the value of the fund followed by Niger at just under 18%.