Invest Like the Best with Patrick O'Shaughnessy
· 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?
· Scott Nolan
[00:00:00] S1: All enrichment is for the most part the same. If you think of it again as like a refining process or a distillation process, you're just refining it further. Ultimately, the product that we make is enrichment services. You can run material through from natural uranium as it comes out of the ground, and you can run it through an enrichment process to get to any arbitrary level of enrichment. The commercially relevant ones are LEU, three to five percent for existing reactors. Or HALEU, 20 percent for advanced reactors. And so when we set out to do this, we said, hey, HALU is what the market needs most right now. And we set out pre-Russia ban. So there was no LEU cliff. We said we're going to develop enrichment capability to serve that market. And the fundamental unit of enrichment capability is, it's just the ability to do this refining. It's measured as something called separative work units in the enrichment field. We will provide that service and we will sell that service to utilities and advanced reactors to get them the fuel that they need. So ultimately, the product that we developed is enrichment, and you can apply it to either of those levels. To your question on how is that different from weapons grade – when you see countries going to weapons grade, they're often trying to go north of 20 percent, which is the internationally agreed limit to where you go to weapons grade. For non-proliferation reasons, there's strong international consensus that we should all just stay below 20. Really the risk is not worth the reward to let people go higher. You see countries going to 60 percent, saying that it's for their nuclear energy industry and it's pretty suspect. I think clearly, they're just trying to get as close as they can to weapons grade, which is well over 90 percent. And they're trying to develop weapons. And so ultimately, it's not different technology, but it's applied in a different way and in a completely non-international consensus setup.
· Patrick O'Shaughnessy, Scott Nolan
[00:00:00] S0: Is the percentage – is the right way to think about that like purity or something? [00:00:00] S1: Yeah, there's U-238, there's U-235. As it comes out of the ground, there's other isotopes also. But the main one's U-238 and you basically want to filter that out to get U-235. U-235 is the isotope that wants to react. That's the fissile isotope. [00:00:00] S0: What do we know about the stock of ore in the world? The raw element – do we have enough of it? [00:00:00] S1: Yeah, plenty. I think we've got certainly hundreds of years of supply in the ground. U.S. has supply. We have active mining in the U.S. Canada has even more supply, higher-grade ores, enough to supply us for a very long time. Same as Australia. And then Kazakhstan's a huge deposit and the U.S. imports from there as well. So on the ore side, not an issue. That'll progress. That'll get more efficient. There's new techniques there. So mining's going to make progress. I think the cost of mining will come down. Output will go up. But it's not really an issue. [00:00:00] S0: How do you build a great business on top of this product? Is it so easy just because there's so much latent demand for it from this new segment, or are there other considerations?