Invest Like the Best with Patrick O'Shaughnessy
· 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?
· Scott Nolan
[00:00:00] S1: I mean, I wouldn't say it's so easy at all. And I think the latent demand has not been obvious for a long time – until the last couple of years. So any large latent demand, I think, is in the last 24 months linked to the thought that there's going to be a lot more data centers doing AI inference or training jobs. But if you go before that, there wasn't a lot of new nuclear being talked about. There was a need for HALEU, but that's a pretty small market. And so I think a lot of people have thought that this is not really something where we need new capacity. If you go back to the 2010s, really no new capacity building anywhere in the 2010s. Certainly not for LEU production, certainly not for HALEU just because it's been emerging so recently. So I think the fact that this is a growing market is – we're still betting on that in many ways. It's not the case that we're currently deploying tons of new reactors in the US, but we think that's coming. So I think the market, we believe in deeply – I don't know that the entire industry believes that the demand is there. They've been through nuclear renaissances before that didn't pan out. And I think their point of view would be, we'll build it when we know that there's a need. At least that's been the attitude of many people that we've talked to. On the ease of doing this, It's a proven thing. People have done this before, but it's still not easy. You see some of these retro technologies that were done in the past, and then we lost a lot of the capability because we didn't do it for so long. And so for enrichment, it's been an industry without a lot of change since really the 90s. Not a lot of progress, not a lot of leveraging of new technology. There's a lot of doing the hard engineering work to get back up to speed to modern. And then even once that's done, you're building facilities that are a million square feet, and large, large multibillion dollar infrastructure projects. In the same way that maybe building the first Tesla Roadster was hard, but the real challenge was how do you scale this up? I think it's extremely underappreciated how much goes into standing up a huge industrial facility. I think that's actually the hard part.
· Patrick O'Shaughnessy, Scott Nolan
[00:00:00] S0: How do you think about the North Star metric for the business? Like if I equate it to SpaceX, the cost per kilogram to orbit or something like that is a really cool thing to visualize over time. What's your chart going to look like? What's the metric? [00:00:00] S1: Yeah. So they had cost per kilo to orbit. Really to a specific orbit of low earth orbit, and you can actually decompose the orbital piece into a velocity. So it's almost like cost per kilo to some velocity. Our version is cost per kilo of uranium – not of a payload – to some enrichment level. And so it's like cost per kilogram to 3-5%, or to 19%. Which can be described as cost per separative work unit, where separative work unit is the industry measure of enrichment. It's basically kilos times some entropy reduction or separation or organization of the material. And so a separative work unit is typically referred to as kgSWU, kilos times separative work units. Our North Star metric is dollars per kilo SWU. [00:00:00] S0: Does that map onto the value creation cycle of your customer? Is that input cost the key determinant of their success as a business?