Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Scott Nolan
[00:00:00] S0: That reminds me of your BYOE concept. Maybe just spell that out in a little bit more detail. [00:00:00] S1: It was just the concept of, we're doing all this investment in the grid for the first time in decades. Private companies are making the investment. They will make the investment with bringing their own power, bring their own energy, BYOE. And they're going to be doing that investment anyway. Their biggest worry is probably something like, will I be allowed to build this data center in this community? Over the last year, I think that's been the start of a discussion. And if they want to get to the right answer on that, and they can tell a community, hey, we're going to be over here on this unused land. Are you OK with us being here and running a bunch of compute and being net positive to your grid? Can we just plug in and give you some extra power in return for inviting us to be your neighbor? To me, that's a complete no-brainer for everybody. At a slight cost increase during a time when hyperscalers – building data centers are all about speed to power, and they want to be online as fast as possible because this is a contest. So who can get to the greatest scale first? That is a very low cost compared to the advantage of deploying quickly in a community and being invited there versus being rebuffed. So I think total no-brainer. And the modern data centers can do completely closed-loop cooling. So the water issue is not an issue. It's really just this power thing.
· Patrick O'Shaughnessy, Scott Nolan
[00:00:00] S0: What would be the explanation for these new advanced reactors ultimately not working? What keeps you up at night? Because this is kind of out of your control – you're not designing these advanced reactors yourself, you're helping them achieve their mission. But they need to be successful. What do you think, if you had to handicap the reasons why they might not be, are the most likely? [00:00:00] S1: I'd say number one is they don't have fuel to operate. That's a showstopper. So we're trying to eliminate that risk. And then part two is they're too expensive. I think the physics will work. I don't think anyone's too worried about that. You have dozens of incredible companies with great engineers who are trying to solve the advanced reactor problem. And typically, they'll pick a form factor that is of the right size to focus on a certain market, whether that's microreactor for remote or SMRs for data centers or very large gigawatt-scale for the grid. And SMRs, I think, ultimately have the plan of being cheaper than the gigawatt-scale construction projects for the grid. But there's many reactors that are trying to solve the reactor cost side of it. And the question is going to be, is their energy production cost low enough? But for these advanced reactors, it's not just a fuel availability problem in question, it's a cost question. The fuel can be half of their total cost. And I think long-term enrichment will be half of the fuel cost.
· Patrick O'Shaughnessy
[00:00:00] S0: For General Matter specifically, I'd love to hear at three levels how you're thinking about building this thing. The product level, the business level, and then the company itself. So starting with the product, how have you figured out what the market wants or needs? You're enriching uranium. Uranium is the key fuel source for different parts of this taxonomy for creating energy. There's lots of different kinds of things that you could provide to your customer. What has the journey been like to figure out what the actual product is going to be?
· Scott Nolan
[00:00:00] S1: Yeah, so this goes all the way back to understanding the fuel cycle or the fuel supply chain for nuclear. So there's five steps. You mine uranium out of the ground. You then convert it into a gas. You then enrich it. You then deconvert it back into a solid. And the enrichment step is really a refining step, a separation step. Then you turn it back into a solid. And then you form fuel pellets. Five steps to go from ore in the ground into a little pellet, into a fuel rod, that goes into a reactor. The U.S. has good capability across the board except in enrichment. It's the one area that we don't have any commercial scale capability. There's some R&D capability, but nothing that's commercial scale or commercially competitive with Russia and Europe. And so we decided, let's hone in on the enrichment step. That's the bottleneck. That's the thing that's leading to these – what we call the nuclear fuel cliffs, where there's three cliffs. Cliff one is the HALEU supply chain. This is the same problem we heard from all the SMR companies. We don't have a source of HALEU. HALEU is the fuel that they need. HALEU is uranium that's enriched to about 20 percent U-235, which is the fissile material. They want it enriched a little bit higher to 20 percent, because it helps the reactor be smaller. So that's the first cliff is HALEU for advanced reactors. They have none. If there's no reliable supply in the next few years, it's going to make it very difficult for them to scale up. So far, they have small amounts from the DOE to prove that their reactors work the way they think they will and to do first deployments, but not to scale to where it really moves the needle on the grid. The second nuclear cliff – the nuclear fuel cliff is 2028, when the U.S.'s ban on Russian uranium imports goes into full effect. January 1st, 2028, we are through an act of Congress no longer allowed to import Russian uranium.
· Patrick O'Shaughnessy, Scott Nolan
[00:00:00] S0: Enriched uranium specifically, or ore, or both? [00:00:00] S1: We will not be importing enriched uranium from Russia or uranium from Russia, which – the only place we get it enriched is Europe and Russia. And today, Russia is about 25% of U.S. imports. And so 20, 25% immediately goes away in 2028. And so utilities in the U.S. will then start eating into their inventories and trying to work out deals to import more from Europe. And we can talk about how that probably plays out. But cliff one is HALEU, 20%. Cliff two is LEU, low enriched uranium at 3-5% enrichment. And then at some point in the future, the U.S. stockpile of enriched uranium for propulsion for the Navy, and eventually that runs out. And so there's these cliffs. We're focused on the nuclear energy side of it, LEU and HALEU, and that's what we're going to be producing. We realized, hey, the most urgent cliff that we need to address as soon as possible is HALEU for advanced reactors. And coincidentally, this is the small market. This is the emergent market that we can go after that we don't think any incumbent will go after on the same timeframe as us. And we can serve those advanced reactor customers that we've known for years and make sure that they have the HALEU that they need to deploy and scale their reactors. That's where we're starting, and then phase two is going to LEU production – low enriched uranium for the 94 reactors on the grid today. And supplying them with the fuel that they need, which today in the U.S., is a two, two and a half billion dollar market.
· Patrick O'Shaughnessy
[00:00:00] S0: What's the relationship between this kind of enrichment and a more weapons oriented type of enrichment?