Welcome back to the Rate of Change with York Wealth Management. As
advices to some of the wealthiest families in the country, the Rate of
Change is a podcast designed to help you in the pursuit of building
long term wealth through the insights of some of the brightest minds in
asset management. I'm your host Murdoch Addy and in today's broadcast,
we're speaking with Todd Warren, a partner and head of research for
Tribeca Investment Partners. Tribeca is a global investment manager
with multiple strategies across equities, credit, carbon and global
natural resources. Join us as Todd unpacks strategies in which he
specializes in. These include the listed resources fund TGF, the
unlisted main fund, the Tribeca global natural resources strategy,
the 2050 strategy, the Kimberly Syndicate, which specializes in
diamonds, and the nuclear energy opportunity strategy, which is
currently having its time in the sun, averaging 40.96% over five
years, 34.9% over three years, 35% over the past year, and averaging
31.43% for the past six months. For me, I really enjoyed hearing Todd's
thoughts on what's currently driving global resources, where he
sees global resources going, and how they're investing in specifically
what companies in all commodities in carbon credits, natural gas,
coal, iron ore, steel, copper, uranium and diamonds. Before we
get into the conversation, please remember this podcast is made for
entertainment purposes only, and not to be construed as any form of
advice. I encourage you to listen to the disclaimer at the end of
this broadcast and to keep your feedback coming. You can reach me
at mgatty at ywm.com.au. So with that being said, I hope you enjoy
this conversation as much as I did. So sit back, relax and enjoy it.
Todd Warren, welcome to the rate of change with York Wealth
Management.
Thank you for having me, Murdoch. Pleasure to be here.
We'll have to thank Adam Curtis for that fantastic event at Seed
Partners for us connecting. That was quite enjoyable. Yeah, well,
turn out.
It was a great turnout. Excellent turnout. Now that the Seed guys
do a great job. You know, very supportive of, you know, trying to
get our story out there. And, you know, at the end of the day, you
know, resources is not everyone's favorite flavor at all times. But,
you know, we're trying to convince people otherwise.
Absolutely. So for people that aren't familiar with yourself,
Todd, you know, who's Todd Warren, and how did you get into
financial markets?
Yeah, so I've been for my sins in financial markets for, what do
we now closing in on 30 years, I joined what was then First State
Fund Managers, part of State Bank New South Wales back in 1996.
And that was in the throes of being consumed by colonial at the
time and becoming colonial first state and spent best part of 23
years there, doing doing resources for most of that. And
then joined Tribeca about four years ago now, to, to again, work
on the resources business here.
How big is Tribeca? If anyone jumps onto the website, you can
kind of get confused that you might be looking at a gigantic
investment bank, but there's, you know, obviously, and there's
also resources as well. So what's the business model? And
you know, who is Tribeca?
Yeah, Tribeca has been around for about 25 years now. Originally
started out managing with a small cap Aussie equities focus.
But the original DNA was really to offer niche or specialist
products that are difficult for others replicate now, you know,
25 years ago, Aussie small caps was that things have obviously
moved on a little bit. And that's, you know, not an uncommon
offering these days out there. But, you know, the DNA still
remains true. And, you know, we continue to focus on those niche
products. So, you know, we launched a global resources
offering where I sit, what are we now nine, nine years ago,
2015. And also offer some, some, some other products like there's
an Aussie equities, one to 30 product run by Jim Belew, who
you may have seen, she she's quite high profile, we offer
Asian credit, Asian infrastructure, and then some
other more niche parts of the resources world. We offer a
nuclear energy opportunities fund, which is, you know, having
a nice little time in the sun now with, I guess, resurgence in
interest in nuclear power, we have a decarbonisation strategy
of 2050 strategy. And then we offer a Kimberly, Kimberly
diamonds trust, which is only investing uber rare Kimberly
diamonds. That's a good intro summary. So why don't we crack
into, you know, on the resources side? So how many funds in the
resources space, which you oversee? Yeah, so well, as I
said, we launched our the global natural resources, I guess the
mothership about nine years ago, and that's a that's a go
anywhere, anywhere in the resources spectrum really, so
hard commodities, oil and gas, traditional energy, new energy,
or indeed soft commodities and into the ag space. And it's a
long short product and a global mandate. We also have as I
touched on that nuclear energy opportunities vehicle been
running now for what we now almost six years. And that
focuses on nuclear energy and uranium miners, developers,
explorers, and of course, new technologies associated with it.
We launched our 2050 strategy in 2021. And that is very much
focused on decarbonisation related investments. So there's
a crossover with our resources strategy being the, you know,
the ability to invest in the enabling commodities, but then
also spreading into other aspects of the decarbonisation
systematic. And then as I say, the the Kimberly diamonds trust,
which is about 18 months old now. And that's just very focused
on, as I say, uber rare diamonds, Argyle diamonds as it
happens. And we call it Kimberly diamonds trust. And we're
happy to have a carbon credit capability as well. And carbon
credits, of course, has had some good times in bed.
It's kind of like my brains is going, which one do we pick
apart first? But look, let's start with something that you
know, everyone's gonna want to know what's happening with
uranium, copper, gas, all the fun stuff, right. But I think we
should definitely touch on carbon before we forget about
that, because that there is incredibly interesting,
considering the amount of
input and the government had essentially forcing and
creating an industry which benefited some and then destroyed
other businesses. And then, eventually, after they input it
in about what a period after that they proceeded to change it
all over again. So everyone that invested money, a couple of
friends that did this, everyone that invested money, they moved
the goalposts. And it was incredibly difficult for them to
pivot for some of these people. Luckily, they were, you know,
came out okay. Do you mind giving a bit of color around
what's happening in that space? That'd be and what happened?
Yeah. How long have we got? It's a complex space. So maybe just
to give a little bit of background and some some sort of
carbon 101 first. So every carbon credit is equivalent to
one ton of carbon. And then if you look at the carbon trading
markets, there are two types of carbon credit, there's either a
compliance market or a regulated market. So the Australian carbon
credit units, the ones you're referring to are the Australian
government regulated carbon credits. And there are similar
types of regimes in countries all around the world. The most
mature, liquid, deepest, broadest market is the European
market, been around for a long, long time. And they are the
European allowances, the EUAs. And all of them, regardless of
what price you see quoted are all, as I say, equivalent to a
ton of carbon. But importantly, you can't fund across markets.
So if you're a European emitter, for example, and you've got a
carbon price of 60 euros a ton, you can't come into the
Australian market and buy an Australian carbon credit unit,
an ACU for 35 Aussie dollars a ton and take it back to Europe
because the rules are different. And the regimes operate quite
differently. There's also then to add some complexity here is
there is a voluntary carbon market. And that is a whole
other kettle of fish again, where you want individual
developers and individual projects. And it's a bit akin to
an equity market where you're picking stocks, but it is an OTC
market, over the counter market, pricing is very opaque, and
liquidity can be very limited. So you need to wear your big boy
pants when you're in that market. With regards to your point
about what happened in the Australian market. Yeah, that's
we can peel back a layer of the onion there. You'll recall that
this was a program or a regime set up by the Abbott government
originally. And that's probably a key point to focus on
initially, given the extreme skepticism under which that
government viewed carbon emissions. And then, I guess,
again, to provide a bit of color to why or how, you know, what
what drove the shift in the goalposts, as you pointed out,
we were approaching a federal election at that time. And there
was a some criticism has been leveled at the regime by some
architects of the regime. But then also, there was this store
of credits that the government had built up. And they, in one
fell swoop, push those into the market. And that is the problem
about of trying to operate in a market where you are at the whim
of government regulation. And it's not just carbon, for that
matter, you know, there's all sorts of examples of government
regulation, you know, distorting markets. But yeah, as you
pointed out that that through the Australian carbon market
sideways, we went from sort of mid $50 a tonne to $30 almost
overnight. And then of course, we were approaching the federal
election, which of course was won by the Albanese government.
And they swiftly announced a review, the Chubb review of the
Australian carbon market. And that then created more
uncertainty and concerns, or erosion of confidence really, of
the Australian carbon market, because there was the
expectation that they would put the cleaners through the market
and make some wholesale changes, roll forward. And actually, what
they didn't do was make wholesale changes, what they
actually found was that the market was actually reasonably
well structured, required some tweaking around the edges, and
there will always be those sorts of tweaks in any nascent market.
But what we've got today is, you know, the Chubb review,
established, or recommended, at least what they call the
safeguard mechanism, which have been rolled out now. And that's
actually a very similar market to the European markets, what's
called a cap and trade market where you set a ceiling of
emissions for the biggest emitters in the economy. And
then they are required to reduce their emissions every single
year, in the Australian case, by 4.9% every single year. If you
are able to do that at a faster rate, you generate a credit that
you can then on sell to someone who's not able to reduce their
emissions fast enough. And that's what creates that that
trading opportunity. Not a straightforward market, and there
will continue to be people who criticize the market. But by the
same token, you know, we need to put a price on carbon. And this
comes back to the whole, I guess, theoretical argument
around carbon credits. At the end of the day, human behavior is
changed by a hit pocket imperative. It doesn't matter
how altruistic, you know, we want to be. At the end of the
day, 99.9999999% of us will only shift our behavior if there's a
hit pocket imperative, there's an economic imperative to do so.
So that's where we need to have a price on carbon. And ultimately,
our view is that price of carbon will or needs to continue to
climb to drive shifting behaviors.
You're not wrong. I think we need an entire podcast
conversation purely just on this topic.
To paint a picture because no one can see the chart. You
mentioned a couple of numbers there. What's the price done?
And what's the price currently trading now for carbon credits
in Australia? Yeah, so that's Europe.
Yeah, the generic Australian carbon credit trades at around
about 3536 Aussie dollars a ton. So I mentioned some numbers
earlier, you know, when the Abbott government was created,
the price ran up to, you know, peaked out in the 50s. And then
of course, we went into the last election, and the price had
collapsed to under $30. So dipped well into the 20s. Post
Chubb review, as I say, we've now managed to climb back well
into the 30s. And you can paint a pretty good argument as to why
it should continue to climb. There is more confidence in that
market today. And there is a growing realization that there's
a structure in place now that is more sustainable, and should
drive a more stable and increasing market.
Obviously, you can paint the picture on why this is a good
thing. The question I always had in the back of my mind is how
can you play a game in a sand pit, you know, when kids on the
other side of the fence just go, why the hell are you even playing
that game? And then you know, other people are like shaking
your finger going, No, no, you must play our rules. It's just
like, hold on a second, mate, in life, you know, it's not black
and white, life's gray. So how do you deal with big ugly
gorillas like China, Southeast Asia, they go, that's very nice
that you know, you feel this way. But you know, we're just
going to keep doing what we want. And other people may say
that, look, what's happening in Europe, the farmers, you know,
the European Union, WHO, pushing down these draconian, as you
said, you know, government regulations on how things should
be done. And it gets to potentially to a point where this
businesses can't operate. And the one that always, you know,
flashes back in my mind, since I grew up in Sydney is, you know,
King's Cross, King's Cross used to be the place where everyone
used to go out and have a bit of fun when a couple of guys or
girls sat in the back room and goes, hold on a second, there's
a huge amount of land sitting right there, which we can't
access. How can we remove them without physically doing force?
Well, hold on a second, if we just put a cap on when these
people can party and sell alcohol, then these businesses
are going to go bankrupt, and we'll be able to come in and
pick it up for a song. So I'm just curious in your opinion
with carbon credits, because I do see the, you know, the
benefit for the world. And I do understand that. But if kids, or
sorry, other countries aren't willing to play the rules, that
a larger globalist thought process is, then what's the
point? Yeah, like using the farming analogy, is this a
business ploy by the top elite to essentially reduce the asset
prices to force businesses out because they can't afford it and
then come in and picking up assets? Or is this generally
done to essentially improve the world? That's, if I've phrased
the question correctly, but I've been thinking about this for
years.
Yeah, it's, it's, it's very complex. You're absolutely right.
And the, the easy, easy answer here is to do nothing. And sit
back and say, well, we are Australia, and we are, you
know, a pimple on the ass of the world, excuse the French. And
we don't matter. You know, what we do actually doesn't matter.
Because as you say, you know, when you've got the world's
biggest economies behaving very differently, then, you know,
ultimately, what what we do doesn't matter. What people I
think fail to recognise is that there's a couple of things going
on here. Number one, I mean, actually, China does have a
carbon market happens to be the biggest by by tonnage in the
world. I did not know that. How interesting. So they do have a
carbon market. But also, I would point out, and this is this is
another factor here, which is often pointed to is that, you
know, the Chinese continue to build out their thermal coal fire
power. They do. Yeah, that's, that's, that's a fact. But what
they're also doing is they are investing more than anyone else
in renewable energy, and nuclear power and hydropower. The fact
is, they've got, you know, one of the world's biggest
population bases, so they need every solution. Now, the other
aspect here, of course, is, who are we? And this comes back to
your point about, or question at least regarding, is this just
employed by the elites to suppress, you know, the the the
those beneath them? Very philosophical question for this
hour on a Friday morning. But look, the reality is that, you
know, that is a very relevant question. And it's why the
entire, you know, ESG, broaden this out to an ESG conversation.
It's why ESG perspectives and investment has had to progress
from the simple ESG 1.0 of just turn off all the thermal, you
know, fossil fuel, consuming power, power generators, that's
not realistic. Who are we to say that, you know, we in the West
have, you know, gone through industrialization and developed
our economies, and you in the developing nations? Well, good
luck. You're not allowed to burn fossil fuels anymore. Well,
that's not realistic. But what we can do is, and this is where
the COP conferences, the climate conferences that take place
every single year, you know, this year was in the Middle
East COP 28. A couple of years ago was the very high profile
COP 26, which occurred in Glasgow. These conferences are
bringing together of all the world's leaders, both at a
political level and at a corporate level, to try and
navigate this very issue. And it requires very significant
investment by developed countries in developing
countries to essentially address this very issue. So that may be,
you know, the investment in renewable power or nuclear power,
whatever it might be, by the West into developing countries,
who are we to say to Bangladesh, which sources 100% of its power
from thermal coal? No, sorry, you've got to turn it all off.
And, you know, if that was, this is observing the ESG 1.0
perspective, you know, that they would be very quickly be
plunged into horrendous economic circumstance, people would die,
millions of people would die, either by starvation, or some
other consequence. So look, there's there's a bit much bigger
picture. And as you say, this is probably a whole other podcast
entirely.
You know, I was actually thinking about it, obviously, you
know, anyone can go have a look at the website, you know, look
at the numbers, you know, see the results, you know, we just
we can just get into what's happening with prices and all the
fun stuff. But I, after having this conversation, I think we
keep going on this path, because the question that I think is the
most interesting is what drives behaviors, right? So if people
can get anything from this conversation today is I would
love to I'd love to hear your thoughts on, you know, why
things like SG, you know, have been created, you know, it's a
great question. There's always the question, is this good for
the people? Or, you know, is this money driven? Or at the end
of the day, is this purely power driven, right? And if people can
and the thing with resources is resources are cyclical, right?
And they're cyclical on the basis of basically demand and
supply the basis of all fundamental markets. So the
question is, what is driving the demand and supply is potentially
the fiscal policy created by these countries that you
mentioned like Bangladesh. So the question then becomes, okay,
why has SG been created? Like, here's the question. Do you think
SG was purely created as the West's means of trying to wean
themselves off Russian gas, and, you know, off that reliability
of the Saudis? What are the four the four largest gas deposits
in oil? What is it Saudi Arabia, Russia, gases, Moselle's Basin,
and the states not as much and then we've just found some in the
Betelgeuse basin, right? So using that as the geography.
What else is the West's options if we go to war? Wow. You know,
I mean, like, it's just, look, I find this quite interesting,
because if you understand the landscape, the global players,
and how this all works, that potentially investors may have
an understanding of why these cycles occur and where to
allocate and why these markets like carbon credits potentially
exist, not the fact that they currently exist and how to play
them. And I'd love to hear your thoughts. I don't know where we
start in this, but
yeah, it's very down right. It's it's an interesting rabbit
hole.
Need a couple of scotches and cigars for this one. Sorry, it's
not an idea. I should have done it in the afternoon.
Look, I mean, ESG has been around a long time, right? It's
just that it's become a bit of a catchphrase in more recent
years. And it as a resources investor. These factors are
factors you have we have had to consider from day one, it's just
there wasn't a there wasn't an acronym that described it. And
somewhat frustratingly for us as resource investors is that there
was this ES and G acronym, but really, it was capital E, small
s small g. And and particularly being driven out of Europe. Now,
you know, the ESG drive really manifested itself in its
simplest form in, you know, sell or avoid, you know, the
investment in fossil fuels. Now, obviously, in my opinion,
times, you know, there's been this, you know, realization of
being reliant on certain geopolitical players for their
natural resources is is probably not wise. But that's sort of
been it's become it's become a separate issue, not because of
the ESG factors. But I'll come back to that if you if you'll
humor me for a moment. We've been openly critical of the
divestment push of many players in the market to say, well, you
need to, you know, activating the activist with super funds, or
companies to divest their thermal coal assets, for
example, selling a thermal coal mine doesn't make it go away.
Indeed, all it does is drive it into the hands of private equity,
state owned entity, and essentially players who have
zero concern for or cares for the environmental consequence of
operating that asset. So pushing the HP or Rio Tinto to sell
their thermal coal mines is actually a negative outcome for
the environment. What should be driven is, is to get into the
companies and say to them, right, you're going to operate
this thermal coal mine, and you're going to do it to the
best of your ability. And when it's life has expired, you will
close it down. And we will be watching over you like a hawk to
ensure that your remediation liabilities are met in full, and
that the communities are not suffering as a consequence, but
just handing that mine the keys to that mine, to a private
equity outfit, or to a state owned entity who will continue
to operate it indeed, probably for longer than a BHP or Rio or
whoever would operate it is not a good outcome for anybody. So
to our view, that's where the ESG 1.0, which frankly was, as I
say, a negative outcome, is progressing needs to and is
progressing to a two or 3.0, where, for example, portfolio
company of ours, Glencore, Glencore cops a lot of criticism
for look, ills of their past, no doubt, but also because they
continue to be a thermal coal operator. They're actually one
of the best coal operators in the world, and have made
actually more aggressive commitments around their scope
one, two, and three emissions than BHP or Rio Tinto. That to
me is a better outcome.
Yeah, it still blows my mind how holistically the government
is trying to keep the coal market going. I mean, it's
still a very, very, very, very, very, very, very, very
difficult to keep the coal market going. So I think it's
important to keep that in mind. How policy can essentially
dictate markets. And the funniest thing, I'd love to hear
your thoughts on coal. As you said, China hasn't stopped. And
then it was like, you know, we're decreasing the mines in
Australia, but what is the volume of coal being exported
from Newcastle through to China? Hasn't that increased?
Yeah, it's actually increased. So the reality is, if we're
talking about oil and gas, we're talking about oil and gas
being exported from Newcastle, which is a very high quality
thermal coal that comes out of Newcastle, you know, 6000
kilocal thermal coal, then burning, you know, high ash,
low energy content, Indonesian thermal coal or Chinese
thermal coal. Look, the reality is, it will continue to be
oil and gas. You know, the governments around the world, to
your point of our policy, beat up on oil and gas producers. But
at the same time, they then subsidize the fuel costs for
the consumer. So hang on. If you want to change behaviors, it
comes back to the point I made earlier, you've got to change
the fiscal impulse of doing so, make it more expensive to burn
fuel, people will stop burning it if it's too expensive to do
so. So you know, like putting it putting a tax on or, you know,
increasing the impost on the oil and gas producer. That's not the
way forward. In my view, in Australia, and again, let's
let's just be down the rabbit hole for a moment on gas. You
know, we've seen gas prices start to climb and you know, the
so called East Coast gas crisis, which is by the way, the slowest
moving train wreck you've ever experienced. We've seen this,
this has been coming for years and years and years. And gas
prices start to spike. And what does the government do? Instead
of saying, right, we've got to let it spike, because that will
actually slow consumption. We're going to cap it at $12. What does
$12 do? It actually constrains supply and encourages demand.
It's quite the opposite of what we're trying to achieve here. So
it all it does is force actually a more acute problem from a
power perspective. But here in Sydney, Sydney, we've had power
rationing a couple of weeks ago in this office building, I sit
in the CBD of Sydney. Now, I don't recall that occurring too
many times in the past. And this this was not a stinking hot day.
So that to me is actually pretty worrying about the pathway
forward. And yet you've got what you've, you've started me off
now. You've got situations. This is half the fun of it. Like, I'm
actually letting you talk, I just want to jump in and go, what
about what about the Australian government's done to
international money? Right? You know, and then we can go into
like, and I'll, since we're on gas, I would love to hear all
about your thoughts on the Beedaloo base, because I believe
you got a holding in Tamboran, right? That there, in my
opinion, is potentially one of the best unsung assets will
solve all our problems. But I've been watching that as if you're
watching your favorite, you know, TV show like The Witcher or
something like that go into the hands of Disney and just get
completely ruined because someone that's never read the
books or watch the movies or whatever, who's writing this
stuff just doesn't care because they want to put their creative
spin on it. And it's a goddamn train wreck. And you're just
hoping that someone's gonna jump in and save this, you know, for
the good of the country. I don't know how else to explain it.
The dreams of the Beedaloo, again, are not new. You know, I
can cast my mind back to meeting Falcon Oil and Gas.
Poor 10, 12 years ago, when they were planning to, you know, put
their first wells into the Beedaloo basin. What, of course,
there are a few challenges, not least being the location is
extremely remote and will require not inconsiderable
investment in infrastructure to bring, you know, any gas
molecules discovered or produced to the market. What we've had
more recently, and as you say, with regards to Tamboran and
their recent news, you've actually got a well result that
that is for the... What was the result? So they've drilled a
well, which is delivered on a 30 day sustainable flow rate of the
equivalent of, well, it was a 500 meter horizontal well. And
in the global scale, that's actually a very short
horizontal well. And sorry, I'll take a step back. Traditional
wells are drilled vertically. More recently, the
unconventional way of drilling wells and what's really been
rolled out and developed significantly in the US and
Canada is horizontal drilling. And that way, you can obviously
expose a much more significant component of rock to extract
more of oil or gas. These guys have drilled a 500 meter
horizontal section and fractured the rock. And they've delivered
3.2 million cubic feet of gas a day on a sustained flow rate
over 30 days. For those of you who... That means absolute
gobbledygook. This is sort of the first time we've got what
could be an economic flow rate from these wells. These are
expensive wells. But if you were to drill and complete this
well using cutting edge, the best rigs, the best completion
techniques coming out of the US, the ultimate aim is to drill
something like a 3 kilometer, 3000 meter horizontal section,
frack it considerably, and then deliver something in the
vicinity of 20 million cubic feet of gas a day. Now, that is
more in the realms of some of the most prolific gas basins in
the US. And that's really what you need to prove up the
economics of this basin and indeed justify the build out of
the infrastructure to bring those gas molecules to market.
What Tamburin have got is quite significant investment from
some large US players. And that's really what they've done
really what's been the game changer is applying the best
rigs and the best techniques to enable this to occur.
Yeah, I should probably disclose that one of the assets when all
the assets with EP 136, you know, I helped finance getting
all that up and running. So I've been financially embedded in
this thing for a while, watching it all play out. Again, it makes
a lot of sense. But I think the thing Australians don't
understand about gas and the Americans get completely is how
many how much capital is required to the life of this,
like people just expect I gave you $50 million or $60 million
raise or he's 80. You're good to go, right? And say no, no, no,
no, no, no, no, this, this, this thing here is potentially a
half a billion US dollar project that actually benefit from a
bond. But, you know, the equity markets are what the equity
markets are. And, you know, games have been played. And,
you know, people want equity and assets, and then you find
yourself in a dilution trap. So I'm just, which is challenging.
But I definitely like what the guys are doing there. Look, from
your from your thoughts. How much money do you reckon they
need to get this thing up and running? Because like, as you
said, it's a it's a glacial pace for the East Coast gas
situation. But we're going to need it. And I can't see
anywhere else that has that amount of gas to consistently
supply Australia. Yeah, look, I'm open to your thoughts. So
obviously, I'm a bit biased, but I'm just curious. Since you've
or since you're also invested in it. Yeah. Well, I mean, right
now they got the $50 million in the bank. This, what they call
their pilot project is a six well program, plus a 35 kilometer
spur pipeline to connect it with what's called the Amadeus
pipeline, which flows up to Darwin. Good questions to what
they'll need. These are expensive wells, you know, they
know, and you you need big rigs with big pressure pumping
spreads to complete the wells. Realistically, you know, if you
drill them all on a pad, which is what they're planning to do,
you know, six wells all from the same pad, and then you can
probably get away with spending something in the vicinity of
$150 million. That's gross. That's gross. Now, bearing in
mind that Tamburin are a SNCC under 40% of this asset, so
they are the operator and and own about 40%. So, you know, in
a best case scenario, they have the existing cash in the till,
and they will be able to raise some debt to do so. So, you
know, as Joel Riddle, the CEO said the other day, the
exploration phase is over, and we're now into development. I
genuinely hope so, because it's been a pretty long road to this
point. And, look, let's be honest, you know, the company
have not done themselves a lot of favors by largely over
promising and under delivering and having some operational
issues. I think the reality is that the company is not
going to be able to do that. I think the reality is they will
come back to market for more equity to fund the pilot. And
at what point, I mean, not immediately, as I say, they got
$50 million in the bank, so they can fund the next capital
wells. But the likelihood is there will be some some more
equity required, but they'll be able to get some debt.
Yeah, the good old fashioned equity raise, A, B, C, D, E, F,
G, and no one knows when it's going to end. The other thing
which I can't find it very interesting, you know, we're
talking about infrastructure. And, you know, absolutely,
let's pivot into other commodities. But the
requirement which people don't see of, like I said, gold mine,
you know, if you stick in a gold mine in Kalgoorlie, and you
find a tenement, well, there's already infrastructure around
20 kilometers down the road, you literally just roll it in,
pay the bill, and off you go. The Northern Territory is like
virgin land. There's nothing there. I think the government
gave them what Tamborin a $1.5 billion grant to essentially
build a terminal right next to impacts. Yeah, that's the plan.
Can I even come through like this is a thing with I'm
speaking a lot of the international money, right? As
in, there's promises. And then so people are happy to back
these plays, but then the governments or the greenies
again with politics, as we were discussing before, just moves
the goalposts. And then people are standing here in Australia
just going, can we just have a view for 10 years, we can make a
plan. Well, hurting all Australians, you're touching on
obviously a massive issue here, and not least of which was the
challenges that Santos face most recently with their Barossa
project too. And we need, to your point, desperately some
clarity on the government stance here. And indeed, the
regulations, the rule book that these companies need to follow
because the problem that has clearly surfaced most recently
with Santos Barossa project was that they observed all the
rules as they were written in the rule book. And then the
court came along and said, yeah, no, rule book doesn't apply.
We need a new rule book. So there is, it becomes a laughing
stock, really. Australia has become a laughing stock
globally, in terms of, you know, shifting goalposts. And no
company will invest in Australia with that sort of
uncertainty overhanging them. So, you know, I think what
ultimately has come to pass with regards to the various
appeals that were lodged by the Environmental Defenders Office
with regards to the Santos Barossa development have been
thrown out. And it does pave a pathway forward for development,
whether it's Santos or, and this is the bit that's, I think,
many have missed here, is that were Santos to be precluded
from laying the pipeline for that project, the reality is
that what it does is affect every offshore activity, not
just pipelines. And what do I mean by that? I mean offshore
wind farms. I mean power cables for said offshore wind farms.
Any offshore activity would be similarly impacted. And I don't
think the agitators on this were really taking that into
account. But how do you plan to build any mine, any commodity,
like to essentially... Yep, you need...
And how do these policies being created when everyone knows
the problem that we have, essentially a supply problem
across the board in many different areas, copper, uranium,
natural gas, how is it anyone think these policies are
actually helping? Or again, are these... I just want... Look,
we haven't had a war for how many years now? Nearly a
century. I'm just wondering if there is like the matrix,
there's actually a war going on, but we're very happily in our
little baths watching TV and it's going on quietly in the
background. It's an economic war. I'm just wondering what is
happening and does it benefit some countries for these
infighting or internal civil war and policies to occur and
doesn't expand and then assets get bought cheaply? I'm just
wondering what is really happening? You're moving into...
It can't be stupidity driving this thing to an extent,
surely. The supply issues we face, as you say, with regards
to, pretty much name the commodity, right? Yeah.
Significant. Not least because of the reticence of the
companies to invest, but it has never been more difficult to
permit a new mine anywhere in the world. Now, that comes down
to some factors which are very appropriate. The
science and the knowledge of the environmental impacts is
higher, so we should properly assess all of those said
impacts and ensure that they are addressed appropriately. But
by the same token, when you get mired in issues like Santos
have, when the rule book gets thrown out the window, then
you cannot expect, regardless, frankly, that the
commodity price companies to invest in new supply if the
landscape is so uncertain. So when you've got a situation
like that, it creates significant supply challenges.
And this is part of our entire argument around what we feel is
a real golden age developing for many commodities because
traditionally, as you say, resources have been very
high-quality, and we can say resources has, has, was, and
will be a supply and demand driven economics 101 sort of
environment or industry. But the problem we've got today is
that the supply response to high commodity prices is no
longer straightforward. And to put it in perspective, the
traditional rule of thumb for developing a new mine was that
seven and ten years from first successful drill hole to first
production. That was your rule of thumb. Obviously, there's
exceptions to the rule. That seven to ten years today is
more like fifteen to twenty. So you find something today, you
will not see the fruits of your labor for fifteen to twenty
years. Now, if you are a board member or a management team of
any company, there's a real likelihood that you're not
going to be in the job in fifteen to twenty years. Indeed,
we criticize boards for being in place for that long. So who's
going to commit to that sort of project where you're not going
to see the fruits of your labor? This is the huge
fundamental issue we face with regards to new supply of many
of these commodities. But how do you invest that way? Because
I'm looking at your portfolios. You've got a small caps farm,
which I'm assuming you're probably taking new issues, new
things coming up, great asset. And then you've got the larger
caps, you break it up, right? But how the hell do you look at
potentially supporting, you know, someone, you know, goes
find something on the land, needs money to get out of the
ground and then you just go, sorry, mate, it's just not
commercial. How do you invest in this climate? With challenge.
Look, there's a typical curve that resources investment
follows and share price charts follow. You know, there's the
initial, you know, boring what appears a flat line, you know,
on the chart of, you know, very small company trying to raise
money from family and friends to go out and drill their first
hole. They then get a sniff and they might come around and
raise a bit more money to drill the next holes and you start to
get some excitement and you get that excitement curve run up as
as, you know, that arm waving period goes on and there's the
hope and dream that you found something career making. And
then you go through the long drawn out period of delineation
where, you know, your drilling isn't actually adding to the
size of it, it's just proving out what you've got, doing your
studies, you're proving out the size of your resource, doing
your feasibility study to see whether it's actually economic
to dig it out of the ground, going through the funding
process, getting the funding to build it and then going through
the build. And ultimately, it's probably going to cost you more
and take you longer. And then finally, you know, after you've
gone through this long, you know, boring, horrendous slide
down, you go into production and you start generating cash
and then you're up and away. And that's a very typical life
cycle of a resources company. It's not easy. When you sound,
it just sounds like there's an expression running around,
which I don't like, which is you will own nothing and you
happy. Meaning we'll own everything and then you work for
us. So what I'm kind of hearing here is, and you're seeing it
quite a lot, that people, well, and look, it's great for
companies like Santos and the big entities that, you know,
have the capital, have the means to and have the connections
to get things done. It just also means that unless you have
those connections, those resources, great projects, which,
you know, people need to actually go about their daily
lives, might not be there. And hence the supply suffers. I
suppose it is a game is three or four day, you know, chance of
the largest scale I played by grand masters. So I always find
it incredibly interesting. And I remember, I remember the
comment. The best taken, right? Yeah. So that's the other way
of thinking about this is ultimately, you know, big
companies will take over small companies if they've got
something worth acquiring, and then they end up building the
mine or at least expanding the mine. That's also the
typical thing. So when we think about building a portfolio, you
want to have, as we think about it, a barbell approach. You
have at one end of that barbell, you have your big liquid
cash flowing entities that have a large diversified portfolio
of assets that reduces the risk. And then at the other end of
the barbell, you have those earlier stage, higher risk, of
course, but not, you know, companies who are trying to
find or develop, you know, the next big thing. Now, if it's
good enough, they'll get taken out, they'll get before it, you
know, it really sees the light of day.
Well, this is actually quite fun. For the small caps in the
small caps, do you take new listings in that portfolio? Is
it a different fund?
Okay, so when you're looking at a new mine coming on to market,
we've discussed a lot about gas, let's say, we've even got
into copper, Dr. Copper and our friend gold. So when you're
looking for a new project coming on, I think there's a
couple of IPOs where there was three IPOs recently, one was
copper gold, I think far northern's resources is about to
IPO up Queensland way, there's a couple projects coming on.
What do you look for when you're looking for a new listing in a
copper gold play?
So really depends. So for example, most recently, you've
had metals acquisition corp, right? So yeah, that's, that's
a somewhat unusual IPO in that they have an existing mine, the
CSA mine, which is Cobra. And that is a actually a very old
mine, which they acquired from Glencore. So to come to market
with what's actually a very mature asset is quite unusual.
Having said that, you've also had 29 metals come to market.
Now that work that was actually a sell down by EMR private
equity of also a portfolio of relatively mature assets. The
alternative is, you know, exploration or development
plays, you know, companies who've got tenements, they're
drilling or develop looking to drill out, and they're raising
the money in the IPO to go and pursue that exploration. But
they're quite different risk profiles. So you know, whereas
metals acquisition corp, per its name, has a strategy to, you
know, as they've bought a mature mine, they will more than
likely buy other producing assets to build out a portfolio
of producing assets and, you know, gradually reduce, you
know, single mine risk within that portfolio. It's got a
management team who've got a track record of buying troubled
assets and turning them around. So that is their their
MR. But yeah, so as I say, otherwise, you've got a
management team that might have a more of an exploration bent
and they're looking to develop or build out an undiscovered
portfolio. So it's very different. But what you're
looking for is the skill set within the management team.
You're looking for a clear line of sight, you know, a catalyst
pathway for news flow and you're looking for obviously
appropriate funding for the business model. In the case of
an exploration play, you want them to have sufficient rope to
go out and drill a number of wells, not just one, because
it's the classic case of, as you touched on earlier, you
know, fundraising, A, B, C, D and E. You don't want to be
that sort of living hand to mouth scenario where good news
actually gets sold because the market knows that you're just
going to be passing around the tin yet again to fund the next
well. So you want that relative degree of funding comfort to
enable a company to pursue a strategy.
So for my understanding, you simply for the listeners, the
the two main things you're looking at is essentially to
pick up a cash flow asset spun out from a legacy business that
they can potentially work better and then utilize that
asset, which might be a bit more expensive than margins on
their list. It's got cash flow and then looking at a number of
bold out on acquisitions for businesses to beep everything
up, they have a good team that can essentially streamline it.
And then secondly, I suppose startup is a good way of
thinking and then startups incredibly exciting finding a
unicorn. But the problem with startups is cash flow and
runway. So whether or not they can get where they need to be
with the cash in the runway, which they have. That's right.
Right. Excellent. Okay, so one comment I remember you saying
it's seed partners is true. And I've been thinking about it.
When from bottom of a crash of a cycle to commodities, is it
generally true that that normally goes up 10x? I remember
you saying that, like if you're looking at lithium, is that
the top after crash on the run up?
Look, it could be all of that and more right. And it really
depends on so equities will trade much greater multiples
than the commodity itself. But if you look at lithium as an
example, bottom to top in the thousands of percent, literally
the moves and look at Azure, that was one of the more
spectacular things I've ever seen to go literally 12 months
ago, talking about an exploration play for lithium and
trading 20 cents to being taken out of something approximating
$4 within about six or eight months. It was spectacular.
Now, there are a number of factors going on there. Number
one, you obviously had significant success with the
drill bit. You had some very deep pocketed strategic investors,
shall we say, who were playing a long term game. And the asset
was located in a jurisdiction which is very mining friendly.
So it ticked a lot of boxes. What you've obviously seen
interestingly as well is that it all occurred in an
environment where the lithium price was going through a
significant correction. So that's what made it even more
extraordinary. Now, this goes to my point earlier about the
cycle that commodity companies go through. What you've actually
seen with the lithium market is because it's very nascent in
and of itself. It was on its knees and it's actually not
that long ago. It's mid 2020 and the lithium spodumene
concentrate, 6% concentrate, was trading sub $400 a ton. Now,
it's come back to something approximating $1,000 a ton now
and everyone's wringing their hands going, oh my God, what's
going on? No one's making any money. Well, need I remind you,
it was 40% of today's price only a couple of years ago. Now,
in between times, it spiked significantly to thousands and
thousands and thousands of dollars a ton. So yes, to your
point and your question, commodities can go many, many,
many X, particularly these more nascent commodities, but the
equities will do that on steroids.
Yeah, and I'm just looking at the lithium carbonate price on
December 21st, 2020, it was like 26,381. It peaked November 7,
2022, roughly at 610,000. It's 20X. Now, it's down to 98,500.
I suppose and look, a lot of people listening, you know, just
like you know, we've seen with many other investments, you
know, after, you know, one hour pay later, everything rips up,
it's all it is and goes again, Sam is commodities probably
substantially more. So what part of the cycle is lithium and
how far away do you see? How long do you take before lithium
turns starts the climb back up again?
Yeah, look, it's at a very interesting juncture right now.
To say you've seen it pull back significantly to the extent
that, you know, we are definitely into the cost curve.
There are lithium miners out there today who are not making
it. They're losing money. Now, obviously, what the reason we
got to this point is because there was a supply response,
particularly out of China, and all that low-grade material
that was coming out of China was brought on very quickly. And
at a time when the demand for lithium is still really at its
relatively early stages. Obviously, you know, I'm sure
your listeners well know what lithium is used for. It's used
in batteries. And we are still at the relatively early stages
of the build out of batteries, specifically going into
electric vehicles primarily. But what we've got today is with
the pullback, there is some supply rationing starting to
occur. We are seeing some interesting responses out of,
you know, particularly those more marginal tons in China,
what's called the Lepidolite supply in China, which is very
low-grade supply and actually has a very significant
environmental footprint, which is conveniently forgotten by
many in the EV camp. But what you've got is that supply
response starting to occur. The concerns have been that demand
has moderated or will moderate, particularly in China, being
the biggest producer of electric vehicles. That's
actually seeming like it might hang in there actually for
2024. So we've seen the prices come back. The equities have
pulled back significantly and it's looking increasingly
interesting from an investment perspective to really start
getting involved, particularly when you've seen, you know,
companies like Pilbara with extraordinary short interest.
It's certainly right for a squeeze. Yeah, PLS and mineral
resources are quite interesting. You can watch them closely on
their trading behavior. The mineral resources has been
swinging substantially from like low 50s up to 71. I think
technically it's on a climb again, but they also have iron ore
assets. Actually, that's what we haven't touched on, iron ore,
which is, you know, in PLS and resources. What's your
thoughts? What's happening with iron ore? So this comes back to,
this is an interesting one, right? So iron ore is actually
one of the few winners of 2023. You know, obviously in that
presentation the other day, the biggest win for us by an
absolute country mile was our uranium exposure. But within
the Australian market context, if you were an iron ore producer,
you were one of the few places which actually made money
through 2023 because frankly speaking, the price remained far
stronger than many expected. Now, why is that? You know, the
expectations were for weakness because, and again, coming back
to points I made in that presentation, there's a
perception out there that the Chinese economy is heading to
hell in a handbasket. And now part of that is because of the
challenges of the property market in China. And I, you know,
there is no easy way for that property market to solve its
challenges. It is structurally, significantly challenged and
will take a long time to fix. But where the market, I think,
got itself into a bit of a negative spiral was the
expectation that the Chinese property market was the only
driver of steel demand. And therefore, with that
negativity, you know, all pervasive, it led to perception
or at least expectation that the demand for iron ore would be
weak as well. What actually transpired was that Chinese
steel production actually ended up being still over a billion
tons a year. The reality is that there's, you know, the iron
ore supply market is still obviously controlled by a very
small number of players and the cost curve is very flat. So
obviously, you've got BHP, Rio Tinto, Fortescue and Vale as
the listed players who are a very, very significant component
of that market. With that, steel production remaining fairly
robust and the fact that there wasn't significant supply
coming into the market, actually the price remained
relatively high. Now, the other aspect which drove some
ongoing build out of the requirement for demand for steel
in China was their infrastructure build and that
ongoing requirement for steel in that build out. So it's not
just property related. And the reality is, look, do I think
Chinese steel is a high growth market? No, I don't. But what's
been more interesting actually in recent times and it's sort of
I think caught many market participants by surprise is
actually the rise of India and India's demand for iron ore to
build out there, feed their steel mills is significant.
Can we dig into that a bit? Because I have my knowledge on
what's happening in India with the growth. I hear snippets,
but I really haven't gone down a rabbit hole on what is
happening with the growth in India and as you said, the
demand for resources and do you think that's what's driving, as
you were saying before? Yeah, I do think it is a reasonably
large driver, certainly from the marginal perspective, that's
sort of the new additional demand tons. Estimates are that
India, producing somewhere over 100 million tons of steel
today could grow to 500 million tons in the next couple of
decades. Now, a couple of decades is a long term, but the
reality is this growth, the hope, shall we say, that's sort
of sat around India seems to be perhaps finally manifesting
itself. Obviously, the population base of India is
very significant, very similar in scale to China and where
people sort of looked at that privacy and thought, well,
that's the next driver of growth. The reality has been
that the constraint, ironically, on Indian growth is the fact
that it's a democracy and you don't have the ability, it's
not a command economy as China is. But what's happening now
with India, very interestingly, is this ugly law of big
numbers. So if you think about Chinese growth rate,
when you're growing at 5% from a billion tons of steel, it's
50 million tons. When you're growing at 5% from 100 million
tons, it's only 5 million tons. So just to give you some
feel, that law of big numbers, that's why it becomes
exponential. So India has some iron ore of its own and
historically has sourced the lion's share of its iron ore
domestically. But as their industry is growing, you get
that marginal ton has to be imported. And so suddenly you've
got a new player in the seaborne market who wasn't
really there before. And they're looking for high quality iron
ore. And interestingly, they're also looking for met coal. So
I was just about to ask you what's the other commodity
they're looking at? Met coal is a big one. So you need the
best quality met metallurgical coal, the steelmaking, and they
will be very strong participants in the seaborne
market for that as well.
Yeah, that demand doesn't sound like it's going away. It just
sounds like it's building quite a lot.
It is and it will continue to. I mean, obviously there's, you
know, around steel, there's the work being done around so-called
green steel, whether that's sourced using hydrogen, or
I think what's more likely is, well, you get the build out of
the electric arc furnace production as opposed to blast
furnace, but utilizing pellet, so very high grade pellet, so
what they call direct injection pellets. So that's what will
probably occur in the US and in the newer mills being installed
in other places around the world, they'll go to EAFs and
so your carbon footprint of these high grade iron ore
pellets is far lower than traditional blast furnaces.
Yeah, that's fascinating. So with the energy to, well, the
population is getting bigger across the world, so everyone
requires more energy. Obviously a number of countries want to
go ESG, but what I find always fascinating about policies
which come out is you've heard of the rubber band expression,
right? Something gets so pushed down because emotionally, you
know, people are standing on a soapbox shaking their finger
going, you shouldn't do this for moral and ethical purposes,
but then smart money just proceeds to wait and be patient
and they love it because if things get pushed down
substantially below when they should be and then it snaps back
so aggressively. Yeah. So it's a lot of money, and it's
a lot of money, which must be incredibly fun to invest in.
It is, and you know, for us really the
best example, recent example of that is uranium.
And that's where I wanted to go to. That's kind of where I was going to.
I really want to, look, why don't you just give exactly what you said
and just say partnerships and explanation of what's happened to
the world of uranium because that was fascinating to hear your
thoughts on the landscape of uranium. Yeah. So look,
uranium has faced, you know, no shortage of headwinds, right? You know,
certainly post-Fukushima most recently, which as it happens is 13 years ago now,
you know, 2011 when, you know, Fukushima occurred and that
really damaged obviously the appetite for nuclear power
globally. But what you've got today is this growing recognition that
in order to decarbonize our power generation
network, we can obviously pursue renewable power,
but the reality is that we do need a very significant
base load support for that, you know, the intermittency of renewable
power that nuclear power can fulfill.
And this sort of growing recognition around the world is
really sort of finally come to light, you know,
whether that is in the US where, you know, the Biden administration
obviously came to power on a very significant decarbonization
related platform with the intent of actually decommissioning
all their nukes. They very quickly realized that
they were never going to achieve anything like their decarbonization
goals if they were to do so. So they have completely suspended all those plans and
indeed we've seen in the last 12 months the
first new nuclear power facility open up in the US
in decades. In Europe, you know, you've seen nuclear power added to their
sustainable finance taxonomy after much debate and hand-wringing, of
course, led by the French who are obviously very big
supporters of nuclear power. In China, they are building more nukes
than they ever have and indeed globally we are now building more nuclear
facilities than we have since the 1970s. What this means is that in a market
today that is roughly 180 million pounds of demand,
we are supplying that demand with about 130 million pounds. So we're 50 million
pounds short. Now where that has been filled historically
was from decommissioned nuclear warheads
for a long period of time and of course stockpiles that built up post
Fukushima, so more recently. But what you've got today is this, as I
say, this realization that nuclear power has or needs to be a component
of our power generation fleet from a carbon
perspective. But the reality, and this comes back to the point around
permitting new mines, there's still significant
nimbus going on, whether it's regards to where these nuclear facilities are
located or indeed where the mines are located.
And we just don't have the ability to build supply
quickly to meet that demand, which is why you've got a situation where
the commodity price, and we've been banging on about
where we thought the upside occurred here in uranium.
And well, to be fair, we were too early. We were talking about this
and watching the uranium price go the other way on us.
But what we've seen more recently is the uranium price run,
well, it was trading not that long ago, so $30 a pound, going back a couple
of years. Just recently it tipped into three
figures, over $100 a pound. And the reality is we still
have a paucity of new supply coming. So we think there is still
significant upside to come here. As I touched on earlier, it's been a
tremendous investment space for us through
2023, as a lot of the market came to the
realization that maybe there was a thematic here to invest in.
And we were already set. And as I say, I've been talking till I'm
blue in the face about some of the favoured names in our portfolio, and
thankfully that's played out. But when you're seeing the...
What are the names in the portfolio in uranium?
Yeah, so we have a bit of a spread. I mean, within the global resources
portfolio, our biggest position has been BOSS
for a few years now, listed here in Australia.
Done very, very well. Actually had a nice little pullback
since the start of the year, touched $6 a share, came back to about
$4.50. We've been buying some more just in the
last week. We think it's like any
surge in markets, there will be periods of consolidation,
and that's what this is right now, and just provides another
opportunity. But BOSS, in Canada, the biggest
producer, Cameco, is a good go-to. It's the
biggest listed producer in the developed world,
and has a very diversified portfolio now, because they're not only in
uranium mining, they're also in enrichment now, having acquired Westinghouse.
So they're working their way down the value chain. But that
is a great go-to name for, I guess, a long-
only investor who wants to be able to sleep at night
without significant risk in their portfolio.
Outside of that, Paladin, also here in Australia,
also approaching production, restarted at their facility.
Not dissimilar to BOSS, is just about to start up.
And then in the US, we have a company called Energy Fuels.
Now, Energy Fuels is listed both in the US and
Canada, and they have the only operational,
fully permitted, and operational uranium mill
in the lower 48. So it's a highly strategic asset.
They can actually process not just uranium, but also rare earths.
So it's a bit of a double threat, and generating
lots of cash flow whilst they build out their
upstream mines as well. What are your thoughts on Deep Yellow?
Because it's a situation how there's just so many companies around, you can't
have all of them, or you'd be specifically, like say,
I see always here we've invested in the past, Deep Yellow. I was just curious in
your thoughts on that company. Well, run by
a bit of an icon, frankly, in the uranium space, John Borschoff.
He built Paladin into a highly successful
uranium miner back in the last cycle. Deep Yellow are making real progress.
Mulgill Rock making progress. We do actually own
Deep Yellow in our Nuclear Energy Opportunities Fund, so the
uranium-focused fund. And yeah, look at on valuation, it
actually looks pretty good. It's not as richly
priced as a Paladin or a Boss, but by the same
token, not as well progressed. It's not as mature, but
it's not too far behind. If we lean into the expression, nothing goes up in a
straight line, and also the point you're making before that, you know, from bottom
to top, there's potentially 10x or more, or
just a bit less. I'm just looking at the uranium price,
US dollar pounds, which on the 9th, March 2020,
was $24.37. So let's say a flat line for a number of years there,
around 24. So he hit 104 in today's trading in 95.
So I suppose, what's that? Nearly 4x has gone up.
The way, I suppose, maybe to look at it is,
and I touched on before, the demand and supply of uranium. What is
currently the demand? What is the supply? What's the difference?
And how long do you reckon that's coming around for? Which I would assume
would probably drive this price, potentially for years to come.
Talk to, so my colleague, Guy Keller, who runs our uranium fund, the
Nuclear Energy Opportunities Fund, he makes a very valid point that,
yes, we've had a run to 100, but we are dealing with a market that
has a deficit yesterday, today, and tomorrow.
And that deficit today is around 50 million pounds on 180 million pound market.
I touched on the fact that we've been feeding that deficit with stockpiles
for a number of years now, but those stockpiles are being whittled away.
Those stockpiles built up in Japan on the back of Fukushima
are largely whittled away. And part of that is because they are
starting to, they're accelerating their restart program as well. So,
Japan has 50 odd nukes, and they suspended most of them on the back of Fukushima.
But interestingly, you've got a situation where there was significant pushback
from their population. And when the most recent
president was elected, he came to power on one of his platforms being restart of the nuclear facilities.
So, we've chewed through that stockpile. And it's exactly the reason why we've seen
prices really start to jump, because we just don't have the fat in the system anymore.
And uranium is not the only one with a very low stockpile. And we talk about stockpiles
being very low for a number of different commodities. But yeah, so that's the scale of the deficit today.
Look, there's the supply response that is brewing,
whether it's BOSS or Paladin. But on the flip side to that coin, you've got
the other very large producer of uranium being the Kazakhs.
The Kazakhs updated their production guidance for 2024, and they cut 10 million pounds from their guidance.
So, it's not doing too many favors to the supply response. So, you need every extra
pound that BOSS can deliver or Paladin can deliver. And meanwhile, the demand scenario
continues to strengthen. As I say, coming back to my point about the renaissance of nuclear power
and governments around the world starting to recognize the upside here. And what's important
is it's not just an upside today or next year. This is going to take years and years and years
to build out that supply. So, there's this sort of growing inventory of new demand
that's coming down the pipeline that will require constant feeding for many years to come.
Well, one of the biggest things, wouldn't you agree, is this whole ESG thing. You can't just say,
no, you have to stop using fossil fuels. It's like, okay, cool. What do we use?
Where's the energy going to come from? So, I suppose to that point is, I suppose the thing
that drives myself nuts and a lot of other investors nuts is you read about information,
as you said, you're too early. I completely understand that. You read information coming
through the news cycles and saying, you see the pattern, you line yourself up, do your research,
you make a bet. And you're like, yep, this is going to play out six or 12 months. Well, fast
forward how many years later. But maybe one way to potentially put that concept in front of our
eyes, I'll make it more understandable, is how many nuclear power plants do you think globally
in the process of being built? And then secondly, how long does it take to actually build one?
Because then you don't mean because they come and go, hey, we're building 50. It's like, okay,
that's great. But you know, when will that be used? Because that happens after it's completed.
It does depend on the size of the facility, right as to how much that they consume,
and how long they take to build. So, you know, rough rule of thumb, you know, most of these are
give or take about a gigawatt. You know, that's a rough estimate of how big these are. And they
consume about 500,000 pounds. So, you know, if we're building 50 to 60 today, you know, that's
another 25 to 30 million pounds of demand on an 180 million pound market. So there's your rough
numbers of additional consumption that's coming into the market. Now, they do take years to build,
years to build. But so too does any major power infrastructure. Snowy 2.0, I'm looking in your
direction. But the other interesting piece here, and this is also, I guess, a bit of a new
development in the nuclear space is the small modular reactors, which you may have heard a
little bit about. So small modular reactors are, as I say, you know, smaller in scale than a
traditional nuclear facility. So as I say, if a typical nuclear power plant is around about a
gigawatt, these small modular reactors might be two to 300 megawatts. So much smaller in scale.
How much land does that smaller take up? Like, I'm just trying to get the size like,
Yeah, so if you think about, as I say, and they're modular, so the idea being you can
stack them up next to each other. But a small modular reactor of that scale, sort of two to
300 megawatts is probably going to be about the size of, you know, have a footprint of say,
half a football field. Oh, they're not that big. Oh, no, no, no, no. That's tiny. That's it.
Half a football field. Yeah. Including the stands or literally just the touch load, touch load.
That's right. Yeah, it's actually a foot so it stands. But yes, so much, much smaller.
And the theory being that I asked that question, because in my mind, I'm literally thinking like,
it's the size of like Allianz Arena. Massive like the old Telstra state. Yeah, so they're much
smaller. I mean, obviously, you have, you know, the support infrastructure around them, but they are
much smaller in size. So they can potentially become like the electrical power grids kind of
running around the city, you can actually just slot them in. Well, that's so they become,
you can obviously position them closer to your users, or you can have them set up for very
specific purposes. Now, you think about the longer term future here of what this might mean.
There's, for example, in China, the contemplation of having, you know, SMRs that just feed, you
know, individual towns or communities. And, you know, one of the other resources that is
going to be more and more strategic and short in supply is water. So if you have an SMR,
you can use your SMR to power your desalination plant, provide municipal heat for your local
communities, and obviously provide your clean carbon free power to power up your lights and
the like, whilst also feeding your electric vehicles that you're going to be driving around
your local community. So that, you know, this is obviously somewhat distant at the moment, but
the reality is that any power infrastructure is expensive. You know, the argument we have in
Australia that nukes are too expensive is frankly built on old science. And you can't tell me for a
moment that, you know, as I say, Snowy 2.0 is going to be a cheap endeavor, I mean, started out as a
$2 billion endeavor, and now it's 12 and it'll be more. How does that make any sense that you make
electricity because obviously dams work, but then some genius figured out how you let's pump it back
up again, then run it through a second time. That makes no sense. Like, clearly the energy cost of
the time must have been incredibly cheap. Do they factor into the commodity prices?
It's just, it's just, it's pumped hydro is conceptually interesting. Where your
utilizing obviously your power generation from solar or whatever during the day when it's not
being consumed as much to pump your water back to the top of your reservoir. And then when
you don't have solar power and people want to, you know, sit at home and turn their lights on,
you then generate power from, you know, allowing the water run downhill through your turbines.
Conceptually, it makes some sense where this, I mean, $2 billion, I mean,
$2 billion was never the right number is the first comment I'd make. But also they play out into it
without the appropriate studies being completed to understand the geological challenges they were
going to encounter subsurface. So part of the issues they faced is that, you know,
they're putting these massive tunnel boring machines into the ground and hitting all sorts of
you know, subterranean ground, which has been very, very difficult to navigate. So it's slow
them down or cost them more, you know, or both. So, you know, I'm not here to tell you that nuclear
power is extraordinarily cheap, but don't for a moment tell me that, you know, it's outlandishly
more expensive than the alternatives. No, look, I really appreciate your thoughts on that. Because
again, like, this is one thing, obviously, a number of podcasts discussing uranium, as you mentioned,
uranium, people immediately think of, you know, a mushroom cloud, or, you know, Chernobyl, or
what happens in Japan, but their fault lines, they're all technology. I don't know if you've
seen the videos that people Chernobyl and they're looking at the, you know, the
the layout, those things look like I don't know the movie Apollo 13, you know, with Tom Cruise,
the tech, you know, the buttons are the size of your thumb or two thumbs.
Yeah, right. Actually, a little tidbit for you on Fukushima. You know, the the modern perception
out in the public is that, you know, the ground shook, the wave came through and, and the
nuclear reactor blew up. Well, what actually occurred was that, you know, this was, you know,
a 40 year old reactor that was built to withstand the mother of all earthquakes, and it did as it
happens. What was the issue is that the operators, TEPCO, had positioned the backup power units,
the diesel generators in the basement. And they were able to do that. And so, you know,
now they were advised, they were advised to put these generators on the roof, but they didn't.
So when the wave came through, the mains power operating the cooling systems failed. And that's
when the diesel generators should kick in. But they were flooded. Yeah. And that's what led to
the failure. It was the diesel gensets that failed the, that failed the cooling system. Now, if those
diesel gensets were on the roof, as they were designed to be, we would not be having this
conversation. Now, do you know how many people were killed as a consequence of, of the meltdown at
Fukushima? No. How many? Zero. Zero. People who died in Fukushima died as a consequence of the
earthquake and the tsunami. Not what happened at Daiichi 1. Well, that makes a lot of sense. But
the other thing people discuss is nuclear fallout. So the deaths and the consequences, you know,
down the track. So I don't know if that's been measured. That's what terrifies people. And the
other little fun fact that people don't realize in Australia, South Australia, that's where they're
essentially tested the nuclear bomb. Correct. And people do not know that. Exactly. They all stand
there with their sunglasses on. Yeah. And they go, oh, this is a nice drive. It's like, hold on a
second. Why my kidneys not working anymore? Yeah, it's, there's far worse radiation, background
radiation out there in that part of South Australia, right? Yeah. There is in Fukushima. But also,
a long haul pilot has much greater buildup of radiation in their system than anyone living in
the Fukushima district. Absolutely crazy. Look, I'm just conscious of time. One last question is,
what are your thoughts on where copper is going? Because, again, none of the supply problem, but
it doesn't have to be as extensive. What's your thoughts on Dr. Copper?
We're usually bullish on copper. You know, the reality is with copper, you know, obviously
copper being used extensively in wiring, as the world electrifies, we are going to need so much
more copper. It's not funny. Now, whether that's to do with wind turbines or solar panels or electric
vehicles, the reality is we consume so much more power just in our day to day, let alone shifting
to electric vehicles. What do you think is driving, you know, the usage of Wi-Fi, internet, data
centers, the AI surge? I mean, just the build out of the use of AI on a Google search platform will
lead to a multi-factor increase in power consumption of Google. Multi-factor. I'm not
talking about small percent, I'm talking multi-factor. Now, we need to generate a huge
amount more power in order to drive that. How do you do that? You need to consume an awful lot more
copper. So conservative estimates are that copper consumption, copper demand will rise to about 30
million tons a year by the end of this decade from about 23 million tons today. So let's assume
that's a million tons additional demand per year between now and 2030. The world's biggest copper
mine is Escondida run by BHB and Rio Tinto. It produces around about a million tons of copper a
year. And declining, by the way, because grades are declining. Now, the replacement cost of Escondida
is around about 25 billion, maybe more, maybe $30 billion today. So we need to be spending $25 to $30
billion every single year between now and 2030 on new copper supply alone. Now, early on in the
podcast, we talked about management's reticence to invest in new supply. Name me a mining company
who's investing $25 to $30 billion a year at the moment on new copper supply. It's not coming.
It's not happening. So the point being, there've been the bears out there on copper say, yeah,
yeah, but we've got a few big new mines that are coming or are in ramp up, whether that's Kamauka
cooler in the Congo, or it's mines in Chile or Peru. We're adding about a million tons.
Between last year and the end of this year. Well, that's great, except there's nothing else in the
hopper. So what else is going to be delivering on that 30 million tons in a few years time?
We've got no stockpiles left. So the reality is the copper price has to go higher to ration demand.
Yeah, because you can't have negative stockpiles. That's just not physically possible. So what has
to happen is the price needs to rise to ration that demand factor. So how do you get exposure
to that? Well, you need to invest in copper producers, not just hopefuls, but producers.
And for us, you invest in the big diversified players like Glencore and Tech, or you invest in
pure plays, big pure plays like Freeport, or in Australia, you've got Sanfire, or even Metals
Acquisition. But you need copper exposure in your portfolio, because there is a massive structural
squeeze coming. Someone just needs to figure out the infighting when it comes to Bougainville and
get that copper gold mine up and running. And I think it will solve a lot of the world's problems.
Yeah, well, let me imagine, Timmy wants to go to Bougainville.
I can name a couple. I've been chatting to them, but you can get the people on board,
but then there's just too many interests and it becomes very, very, very challenging. Look,
I normally finish on what keeps you up at night, what gets you out of bed in the morning, but you
mentioned Congo. I was listening to Joe Rogan and he interviewed a guy who actually physically went
there. And I suppose it resonated. I just want to hear your thoughts on Congo and Cobalt specifically.
We walk around town, everyone lives well, looking at electronic devices. I kind of think
of one electronic phone that doesn't have Cobalt in it. And I think about all these people,
shaking their finger going, you can't do this, you can't do that.
Meanwhile, plastic straws, plastic bags, don't get me started. But I hope I don't finish. Actually,
I don't care. I'm just kind of over it. Meanwhile, they're on their phones tweeting about it and just
being a pain in the ass in my French. But do they understand that Cobalt is artisanally mined in the
Congo? And if you read Google or whomever it is, they never specifically stay. It's kind of like
hidden behind a number of layers of where it specifically comes from. So I suppose my two
question is, what percentage is actually coming out of the Congo? I think there's a number of
Cobalt mines in Australia. And are you exposed to Cobalt? Is there a solution to the Cobalt problem?
I'm just curious what's happening there. Because people discuss ESG at length in their portfolios,
but people don't realize that one of the biggest things that they invest in everything's got
Cobalt in it. And there's women with their babies on their back getting cancers, pulling this stuff
out of the ground with their hands. And it's not discussed. Yeah, you've hit upon a
key issue here. And that's it's an endless frustration and why supply remains a challenge
for many commodities. And that's that ignorance of where these commodities are coming from.
To your point, there's many agitators that just will happily tell you that all mining is bad.
And as you say, spread the word about the latest protest on their mobile phone.
Forgetting that, yeah, of course, mobile phones, unfortunately, don't grow on trees.
So yeah, look, it's a key issue. And it's a challenge that will, sadly, continue to be faced.
With regards to Cobalt specifically, yeah, the reality is that the DRC is
a bit of a geological anomaly, where there are primary Cobalt mines. Cobalt typically is a
byproduct. So it comes as a byproduct, often of copper mining. And so, for example, in Australia,
it's a background commodity to, in some cases, other copper mines. So we do produce some in
Australia. But you're right in that some of the Cobalt that comes out of the DRC is, shall we say,
not exactly ethically mined. Now, that's not to say that all of it is like that. There's
Glencore, for example, does mine Cobalt in the DRC. And this actually goes to a bigger
point and something that some mining companies are looking at ways of developing is essentially
having a bit like a blockchain attached to the tons or pounds of the commodity that you produce
that enables the end consumer to be able to trace those parts of the
end consumer to be able to trace those pounds back to some sort of responsibly produced source.
It's still a work in progress, is the bottom line. But this is where pressure needs to be applied
upon the OEMs, whether it is the Apples or the Samsungs or the Fords and the Teslas and
the and whoever else who are consuming or utilizing such commodities. The onus is on them
to also source their product from a responsible source. And that will drive, do a better job of
driving out the unethical suppliers. It probably should, in all honesty, I quite like what you're
doing at the Kimberley syndicate with the diamonds. But again, what's his name? Titanic, our friend,
that did our blood diamond. He's named Leonardo DiCaprio, right? You know, he's shown a lot on
blood diamonds and everyone has blood diamonds. That's like one diamond. Everyone's got such an
upper. And I think the reason why people have such an upper when it comes to diamonds is because
every little wife is wearing that on their finger. And every husband wants to, you know,
get engaged and give her one. So it's a constant reminder that they're looking at this rock on
their finger. What I'm just find fascinating is everyone's got a problem with that. But meanwhile,
they're tweeting about that they're taking the photograph with their phone of it just makes no
sense. Anyway, but you know, maybe we'll get there in time. Look, Todd, I really appreciate your time.
This conversation is fascinating. It could be here for another hour and a half. But look,
if anyone wants to learn more about Tribeca partners, investment partners, and what you do
in the funds, where should they go? And how can they find you? Yeah, you can find us online.
Obviously, the Tribeca investment partners is if you Google search Tribeca investment partners,
you will find us. Tribecaip.com is our website. And you'll find all the material on all of our
product offerings. We are well, we believe, you know, a pretty entrepreneurial outfit,
we do offer very niche products that we think are difficult for others to replicate. We've been
doing this for a long time. You know, we've been around a long time. And you know, we are all
believers in the product, you know, I'm a big investor in my own fund. And all the portfolio
managers are you know, we think that's really important. We've got alignment with with our
investors and feel the feel the good times and and the bad. Well, it's been great having you on. And
I really appreciate your insights. And I hope everyone has enjoyed that because it's quite
eye opening. The wide world of resources. It's it's been a pleasure to be on here, Murdoch. I
apologize, I can talk underwits me with a mouthful of marbles when I get started. So you know, but
it is a topic I'm pretty passionate about. Hopefully that that comes across. But you know,
that's what you get with with Tribeca, you get passionate people. I love it. All right,
have a great day. Thanks, Murdoch.