The Lowdown on Uranium, Lithium & Carbon w/ Nicolas Piquard

[00:00:00] Pierre Daillie:Over the last decade, we’ve seen a trend of countries reprioritizing their traditional energy investment thesis in order to mitigate climate change. Russia’s invasion of Ukraine is resulting in significant fossil fuel deficiencies throughout Europe, and will have an impact on Asia to some degree. As the world attempts to move away from using fossil fuels, alternative energy sources are becoming more important, but in the meantime, it’s difficult to close the gap on global energy deficiencies. Nuclear is making a significant comeback as an alternative green source of energy and electric vehicles are gaining popularity as well.

And with them, there’s a growing demand for lithium, for battery manufacturing. Joining us to talk about uranium, strategic commodities, and carbon credits, is Nicolas Piquard, portfolio manager at Horizons ETFs. So stay tuned. Mike Philbrick is with me, from ReSolve Asset Management Global. Hit that subscribe button, give us a and leave comments.

[00:01:01] Announcement / Disclaimer: The views and opinions expressed in this broadcast are those of the individual guests and do not necessarily reflect the official policy or position of advisoranalyst.com or of our guests. This broadcast is meant to be for informational purposes only, nothing discussed in this broadcast is intended to be considered as advice.

[00:01:18] Pierre Daillie: Nick, it’s awesome to have you on the show again. Thank you so much for joining us.

[00:01:22] Nicolas Piquard: Yeah, thanks for having me on. Happy to be back.

[00:01:24] Pierre Daillie: Nick, among other things, o- one of the mandates that you are on as a portfolio manager at Horizons is HURA, the Horizons Global Uranium Index ETF. What’s happening in the uranium space, and what’s your outlook?

[00:01:40] Nicolas Piquard: Things have really things were already looking very good six months ago in, in the uranium space. The spot price was recovering nicely. We spoke in September about what was happening in uranium and everything was going in the right direction and things have just been turbo-boosted here in the past few months driven by the conflict in Russia, which has propelled fossil fuel prices to strike [laugh] atmospheric levels. And u- uranium has followed too, because uranium is a, a decent provider of energy and zero emission energy at that. And governments everywhere are now looking at ways to get energy independence from fossil fuels.

[00:02:31] Mike Philbrick: Yeah.

[laugh].

And that uranium side of things too, the thing that I always remember is the always-on type of power that uranium is, that is such a great base power for communities, industrial complexes. Whoever’s, whoever- whoever’s using electrons, it’s a great base rate of power, unlike some of the solar or wind-type powers, which are a little bit more variant in their outputs. So i- is there a way for us to as a human civilization, if you will, if I’m gonna go-

[laughs].

… to some largesse, can we bridge the gap between where we are today and zero carbon emissions without something like nuclear?

[00:03:14] Nicolas Piquard: I think it’s just gonna be very difficult. I think that, everyone talks about wind and solar, but as you mentioned they’re not on all the time. And I think wind is on, a third of the time, you got solar. It’s on at least less than 50 just from nighttime, daytime. But with cloud cover and whatnot, it’s really only on like kind of 25% of the time. So to reach zero emission, you need baseload energy. Hydro is one of the solutions, but even hydro, we’re seeing all sorts of problems with hydro capacity.

We, we saw it early. One of the things that drove the energy crisis in Europe even before what we’re seeing in Russia today was the fact that Norway was having capacity issues with their hydro and the lack of wind in the North Sea. So we see that renewables and zero emissions, it’s not gonna be easy and it looks like nuclear has to be part of that solution.

[00:04:19] Mike Philbrick: And so how is that th- the, I’m gonna reference the Overton window again, which is just the-

[laughs].

… The way societies go through the viewing of a particular topic and how those views change over time and how we’ve gone through the post-Fukushima era. Hey, 2011 little earthquake, oh my gosh, some serious issues on the nuclear side and denuclearizing, but now it’s a different set of views that we’re starting to see that, that power source through the lens of.

And I’m wondering if it, what are your insights, whether it’s on US energy policy, global energy policy, what are you seeing that’s continued to change the viewpoint out there as you are managing, a couple of these sort of alternative commodity funds, whether it be lithium or uranium? How are you seeing the change in that zeitgeist in the moment, as you’re talking with investors and managing the portfolio?

[00:05:23] Nicolas Piquard: Yeah, I think, on the uranium side, we’ve basically seen complete 180s in terms of policies from from governments. And i- if you look at the US, for example it started with Trump and the American Nuclear Infrastructure Act, which was basically a way to get more y- incentivize uranium production and save existing nuclear power plants. But that, it continued with the Democrats. The Democrats have traditionally-

Yeah.

… not been for nuclear. And, but in the la- latest Biden administration, when they were elected, nuclear was part of that platform. And i- it has not been the case for nuclear, for, sorry, for Democrats. That hasn’t been the case in over 40 years, for them to openly support nuclear. So already you’re seeing a big change in their outlook there. The other one is Europe, Yeah.

… in particular France. When Macron was elected in five years ago, election’s coming up now, but when he was elected five years ago, he had basically said, he had a green environmentalist minister, and they basically said they’re gonna reduce nuclear from the existing 75% to 50% of total energy bureau. Still very high by most country standard, but they wanted to move away from nuclear and more into wind and solar. What- what we’ve seen in the past year, with everything that’s going on, is a total 180 on that policy. They’re now saying they’re gonna reinvest, build 14, up to 14 new reactors and they are, they’re not mentioning anything about reducing uranium as part of the or nuclear as part of the energy mix.

Yeah.

[00:07:16] Nicolas Piquard: If anything one of the things that we saw, that I just read in the news on Friday was Kazatomprom, which is the Kazakhstan uranium company state uranium company, and it sold off from the high. It’s worse, significantly since the Russian war began, because it’s gone down from about $50 close to $50 to almost $25, almost 50%. And mostly it’s because people were afraid of the, p- policy implications, given that the Kazakhstan is a former Soviet Republic.

Just on Friday, Orano, which is the state French mining company they s- they had a meeting with Ka- Kazatomprom and said, "We’re committed to our joint venture here. We wanna expand this joint venture. We wanna make sure everything works, ’cause we need this uranium and we wanna make sure that we can still work together."

And on that news the stock was up, 10- 10%. So I think, I think that there’s def- there’s definitely a lot of countries who realize they need secure energy, they need, nuclear has to be part of that solution, and and they’re making sure that they’re securing that supply.

Yeah, it was also it was interesting to see also that in January, the I don’t, I can’t recall the name of the authorities, but it was th- the folks who were in charge of ESG and taxonomy. And they made a change to allow for uranium to be included in the green taxonomy in Europe, which now allows for uranium to be part of the ESG investment category as well,

openly.

Yeah. And that was a big tug of war between basically France and Germany. Germany did not want it to be in the taxonomy and France did. And the other question mark was natural gas whether it should be part of the taxonomy. The Germans wanted in there. A lot of people thought it was not the right thing to do given it’s not, it’s still a fossil fuel. But neu- you know, as we now know now Germany is incredibly reliant on natural gas. [laughs] yeah.

And they agreed to disagree and say, "Look you can have natural gas we can have uranium." but for- for nuclear, but for nuclear, this is a very big deal, and I’ll tell you why, because one of the big costs in nuclear energy is not really the uranium it- it’s the cost of building the plant, Yeah.

… And financing that, that cost, because it takes five, like it should take five years [laughs]. Recently, it’s taken a lot longer than that. Hopefully they can control the the timelines. But it takes a long time to build these plants, and so the cost of money, if you can borrow money cheaply, that really reduces the overall cost. So the fact that it can get into that taxonomy and get preferential investors or get investors more easily invested and more easily financed that could be a big, th- that’s one of the reasons China has been able to really cheaply build a lot of their nuclear reactors over the last 10, 15 years, it’s because it’s all state-financed at very low levels.

[00:10:55] Mike Philbrick: And I think, I don’t think people quite understand too how how little, how low a cost, a portion of the cost production of the electron that uranium is, in that whole production process, going from, uranium to electrons, out the other end, and how small of a cost component is. Maybe you can highlight that as well.

[00:11:18] Nicolas Piquard: Yeah it is a very small cost. The nuclear fuel it only represents about, 10% of the overall cost of operating nuclear power plant. And the ura- uranium is only a part of that nuclear fuel cost. There’s all sorts of other costs involved in enriching and whatnot and conversion and whatnot. So uranium itself is actually a small, a relatively small part of overall cost per nuclear power plant. So they’re fairly insensitive to the price.

In fact for the past 10 years a lot of the contracts that were signed with the utilities are at much higher levels than what we had over the last few years. What we see on the screen and what is reported in the press is the short-term spot level but that’s not really what the utilities are paying. The utilities are paying long-term contract levels which went as high as $80 in the last bull market. Finally, after 10 years a lot of these contracts were signed 10 years ago, then after Fukushima, none of these contracts were signed anymore because people were thinking we’re not gonna need nuclear anymore. Nobody’s going to want that anymore."

And so now, finally, the utilities are realizing, my contracts are coming up, I gotta start contracting again." And guess what, there’s a shortage, and so that’s, now we’re seeing some real, over the last couple years, we saw a lot of investor demand, we saw some price coming up just based on the fact that, supply got really reduced over the last couple of years, but now we’re really seeing the fundamental demand come in. And I think Cameco said on their last conference call that they’ve seen more contracting in the first three months of this year than they did all of last year.

So

[00:13:14] Mike Philbrick: where are we on the supply side of that equation though, with, call it a, a decade of underinvestment and under development of, greenfields pro- projects, brownfields projects, where are we on that side? So we’ve got the demand equation coming together strong, we’ve got some tightness. Do we see a lot of projects? I wouldn’t think we have, we would, but where are we on the side of having more projects producing more of the of the product in order to facilitate the need?

[00:13:47] Nicolas Piquard: Just, yeah, that’s a g- excellent question. And just to get the back to where we need, just to get rid of the supply deficit that we have right now, just today, forget any kind of new plants coming online, just today, w- we’re significantly below what we need just to just to get back to a no-deficit situation. Even if you brought back McArthur River which is the largest mine in the world, which Cameco announced that they wanna bring back you, it still wouldn’t get you there, you’d have to get all the other mines that have closed down.

And some of them are pretty much close, are- aren’t really gonna produce any more uranium. Ranger i- is an ex- example of that in Australia. That- that shut down, that’s no- no longer really gonna produce any more uranium. O- other mines like Langer Heinrich the Paladins mine that’s 4 million pounds a year, that could come back online. There’s a couple here and there, but, really you’re gonna be relying on chemical to bring back the 20 million bounds from McArthur river.

And they’ve said that in the process of doing that, they’re only gonna bring back Cigar Lake at half its capacity, to extend its mine life. One, one of the, also one of the question mark is, how long are these mines gonna go for? Cigar Lake was- at full capacity was only supposed to go until the end of the- this decade, and after that, it was gonna run out of uranium. So if you’re looking at the supply-demand picture, in the short-term, yeah. If you turn everything back on, you might be able to more or less get there, but you wouldn’t be able to get there if demand starts going up and you wouldn’t be able to get there in 10 years.

Yeah.

[00:15:32] Nicolas Piquard: Like if things are gonna run out, you gotta start thinking about, ’cause these mines take a long time to develop. One of the highest grade mines in the world in terms of discoveries is the next-gen Arrow Deposit in the Athabasca Basin. Was discovered, I think in around early last decade, 2012. They’ve done some work, now they’re gonna make a dis- they’re s- probably pretty close to making decision on what to do in terms of getting the project started. But that, you’re not gonna get uranium out of there out of that mine for another, I don’t know, 5, 6, 7 years maybe more.

So you really gotta p- plan ahead. The, in Africa, you have some projects in Africa where the environmental permitting is a little bit easier, and so you might be able to get some mines i- in Namibia and some mines in Niger o- operating. But you’re gonna need, you’re gonna need 60, 70, 80$ uranium prices for that. So yeah, it’s the supply and demand picture is still very bullish in my view.

[00:16:43] Mike Philbrick: Yeah, so very tight. And, one of, one of the old adages is the solution for a tight commodity in, in, in higher prices is, and low supplies, higher prices get more production online, they justify the discounted cash flow models in order to make the investments happen. And I think we’re in this very weird and unique situation where we’ve had a whole bunch of other pressures whether it be Fukushima, ESG, the mislabeling of ESG to some degree, create-

Yeah.

[00:17:14] Mike Philbrick: … a very tight situation which, is solved by higher uranium prices, which I think pretty much everyone is accommodative of at the moment, which is a-

So-

… is the nice part

[00:17:27] Pierre Daillie: of it. Go ahead.

It- it’s pretty elastic right now. The price can go up substantially and have little or no impact on the continued demand.

Yeah, no, Yeah.

[00:17:39] Nicolas Piquard: … and I think you mean inelastic, like basically-

Oh, yeah. Pardon me.

Yeah. Basically, the price can go up and there’s not gonna be an equivalent supply, a reaction for years. Yeah.

And i- we’re even looking at some of these smaller companies. There’s still a lot of, they rallied initially, but they haven’t really done that, that much in, since the, that initial rally. There’s still g- I believe there’s still gonna be a lot of M&A I don’t think this bull market is gonna be over until you start seeing major miners deciding, what we have to be in uranium. Like we, this is gonna be part of the energy future." It’s no longer… Right now you look at the major uranium producers, it’ just Cameco and Kazatomprom, that’s all they, that’s all they do.

Yeah.

[00:18:29] Nicolas Piquard: You gotta get more you have Olympic Dam and you have some uranium byproducts in by, in, in barracks mines, but for the most part, the major miners haven’t really been involved in the uranium space. And I think as they see this transition happening, they’re gonna be looking for projects to acquire, and that’s when you really, you’re gonna get some major price movements.

N- Nick, where

[00:18:54] Pierre Daillie: do you see the price of uranium

[00:18:56] Nicolas Piquard: going?

If you would asked me six months ago, I would’ve said, 60, $70 where you would’ve gotten in the short-term, I- we’re here now. One of the things that’s changed over the last six months, of course, with all this inflation, is that the breaking price for all these companies in terms of, starting production, it used to be $60 last year now it’s gonna be higher than that [laugh].

So now, just like the price gone up and, the break-even price has gone up as well. So I think we could definitely in the short-term we could get to 7- 78, $80. And I think eventually we’ll overshoot that, as the demand picture becomes clearer. Right now, I think it’s really been driven by the demand from investors which, we should talk about that a little bit.

Tha- that’s been pretty significant. But also, th- the re- the reality on the ground, which is, governments, like we mentioned earlier, governments everywhere are realizing, we have to, we have to make sure that we, secure supply and that we’re, we, this is an important thing for us and that we support this industry. And so I think investors have reacted to that.

But I think eventually, just like every bull market in any commodity things are gonna overshoot. And so I think we could easily get to over a hundred dollars.

[00:20:28] Mike Philbrick: And w- what about the, and we’ll talk, we’ll come back to the demand from individual investors too, ’cause I do wanna pull on that thread a little bit, but before we go there, I also want to just touch on or understand that there’s a lot of talk of the sort of smaller size modular, reactors that are-

… a little bit more mobile, set up more quickly and also use spent rods or spent fuel in order to provide some sort of fuel for their, for the reactors. How real is that? How true is that? How close is that to a reality? Is that kind of sort of pipe-dreaming or is that a real thing?

[00:21:04] Nicolas Piquard: I think that is a real thing. I think that there’s projects now in the US and Canada in Europe and, depending on your definition of an SMR small modular reactor there- there’s one, there’s- they’re operating in Russia and China already. The whole idea with SMRs they’re not that new or that that incredibly innovative, in the sense that, they, we’ve had small modular reactors in we’ve had them in nuclear submarines for-

… A long time.

Okay.

[00:21:47] Nicolas Piquard: And they operate very well in the submarines and so these, they’re just, what makes them interesting and why people are starting to talk about them more, is that, can we start mass-producing these? Can we put up them in a factory setting where… ‘Cause most, as we talked earlier, most of the cost of building nuclear energy is in the building the plant and that costs a lot of money. But can we get, can we reduce that cost by creating a factory-like setting where most of the costs are contained and you can fast-track the production of these things? If it takes you 10 year- if you have to borrow money for 10 years to build anything, it’s, yeah, it’s gonna be expensive.

But if you can build the same thing, even if it’s slightly more expensive, ’cause one of the problems with SMRs is that because they- they’re smaller, on a cost per watt basis, it ends up being more expensive, ’cause you’re not maximizing in the total power. But if you can reduce the timelines from 10 years to six months and you can then copy paste all over the place then maybe you get to a point where it’s competitive.

And that… So we’re not there yet, because they’re still getting approvals on these. I think Canada aims to have their first SMR up and running by the end of this decade. I think the US is maybe a year before that or something like that. But with new scale, I think Ca- I forget the Ontario government is working with, I think Saskatchewan and New Brunswick they had an agreement on working with the SMRs. So there’s a lot of policy and a lot of governments are looking at SMR because they’re safer the new designs don’t melt down.

They, they have, they can fit better within kind of a solar and wind. Like you can just pluck them in different areas. But more importantly for a country like Canada, you could put an SMR in a mine, in, in in, in anywhere in Northern Quebec or Northern Saskatchewan or wherever, where it’s very hard to get electricity and very hard to get a grid, and-

… you could use that instead of diesel, which is actually a lot more expensive than most electricity generations. So there’s a lot of application, I think we’ll see those applications come potentially out first, where, on, on islands where, electricity is expensive or in other places where electricity is expensive.

So

[00:24:34] Mike Philbrick: Nick, in all this, there sounds like there’s a huge opportunity for a high end labor force as well. Can you expand on how- what are the implications for employment growth in this, or in this type of industry versus other energy industries?

[00:24:48] Nicolas Piquard: Y- yeah. I think you- we, we can joke about it, but if you look at Homer Simpson’s job. And, Yeah [laughs].

… At the at the power plant he, it’s a high, it’s technical high-paying job which, the, all these countries that have nuclear are sh- are increasingly short of. And nuclear or EDF, which is the French electricity company, is actually the third-largest employer in France. And part of that reason is because these power plants, one of the reason they’re expensive is because they require, they do require a lot of labor to maintain, and highly trained technical labor, which is fairly highly paid to keep these running.

And so for governments relative to solar and wind, which kind of, o- once you install it, it it’s a little less labor-intensive so this is a good solution for employment as well. And when these nuclear power plants shut down in the US, that was one of the big things with the Bruce power plant in Illinois.

It’s the largest power plant in the US. It was one, one of the best safety records in the US. They had a very highly trained they have a very highly trained labor force and they looked like they were all gonna be out of a job by this year unless, the government helped them. And and so the government of Illinois basically said, we gotta do something. This is zero emission energy, of which, we don’t have very much in Illinois and this is our- the biggest power plant in the US. And we have all this job."

If the Bruce power plant shuts down, that entire town basically, it ends up like a Flint, Michigan. And so-

Yeah.

[00:26:48] Nicolas Piquard: … Governments don’t want that, [laughs] they’re under a lot of pressure to make sure that, that doesn’t happen to these towns and to these cities. And and now they can also say it’s gonna help get to zero emission and you’re gonna save these high-paying jobs that pay, a lot more than, minimum wage. And yeah, I think from that perspective it’s an often overlooked, I think argument, but when you’re, when you’re- the nuclear power plant is in your constituency, that’s something you’re very aware of, for sure.

Yeah. And you I can start to see how the puzzle pieces are coming together-

[00:27:34] Mike Philbrick: … as you go through tightness in the su- supply demand dynamics the urgency for more green energy and the coincident ener- the coincident need for whether it’s build better, build back better infrastructure plays that are long-term in nature that are gonna create some sort of sovereign safety around the source of the energy power, the energy as well. So it really feels like this mosaic is coming together and-

[00:28:05] Pierre Daillie: Yeah. And just to add to what you’re saying, Mike is, when you consider what the environmental to- toll has been as a result of shale and, in the Permian that environmental toll has been huge in terms of, people complaining about gas coming out of the ground and, y- yeah. And then you’ve got a- all the ramifications of the oil sands, if you wa- if you want to talk about environmental pollution for-

[00:28:35] Mike Philbrick: There- Yeah, there’s that too. Yeah.

… for hydrocarbons and whatnot.

[laughs].

[00:28:38] Mike Philbrick: And maybe we can just, now if you don’t mind, can we circle back to that demand from the, in- individual investors coming on board maybe, and highlighting a little bit more. Let’s pull on that thread. So what are you seeing, just generally? So this initial thrust in demand has been largely driven by investors? Or?

[00:28:56] Nicolas Piquard: Y- yeah. Yeah. Investors who… So about six months ago, I think in August the Sprott took over the ur- uranium participation fund unit, which fund, which was basically a fund that invested in uranium. It got started in 2005 a, during the previous kind of bull market in uranium. And initially, it it did no, it did well. And of course with the sell-off in u- prices in uranium, it was lagged and a bit of a laggard for, the better part of last decade.

And, things started to pick up a b- again a little bit. And Sprott really saw an opportunity to they saw an opportunity, uranium. They’ve also actually acquired an ETF in the US, that tracks uranium stocks. And so they- they’ve become very bullish on uranium and they decided that the Sprott Physical Uranium was a good way to play that. And, the demand, a credit to them, they- they’ve been able to generate a lot of interest in the sector, and they’ve bought, I think some, I got- I gotta look at my exact, the exact numbers.

But it’s, they- they’ve bought tens of millions of pounds of uranium more than the largest mines produce, in a year. And it’s been relative to the size of the original fund. The original fund was 600 million it’s now up to two and a half billion dollars. And that, they’ve done that in six months. And so I think what’s happening here is what’s really kept the price low in uranium for a long time was the excess inventory that had built up over the years.

So what happened with Fukushima of course, is Japan shut down all their plants China put their plants on hold for years, and Germany shut down a good portion a good portion of their plants. And so you had all this supply that was going into these utilities that didn’t need them anymore. And so those utilities, they have all this extra uranium and they pod up and they say we gotta start selling it." and so over the years, they’re slowly selling it, but there’s no real buyers in the short term spot market.

They’ve basically just been s- slowly selling and keeping the price low, and nobody knows exactly how much of a secondary inventory exactly is out there. ‘Cause a lot of that inventory is earmarked for future electricity generation, so it’s hard to dissociate how much inventory is really available versus how much is there but required. But I think we’re about to find out yeah,

[00:32:03] Mike Philbrick: because [laughs]-

Yeah. We have the, there’s the stock and there’s the flow, and we-

Yeah.

… yeah, we’re using up the stock and now the flow’s getting a little tight too, so the stock flow’s a little off, but-

E- exactly.

That, that is that’s really interesting.

We’ve

[00:32:17] Pierre Daillie: talked about the price, the outlook for the commodity, and the supply, demand factors. What about the companies in the sector that are part of the inde- the index that, Can we just, be- before we go to the companies and I think that’s a great next place, I also wanted to just highlight how uranium is unique in, in the commodity space, in that, it’s not really like a, there’s not a highly liquid futures market for uranium, right? This is pretty serious product that one needs to be highly-regulated to handle. And so I wonder if you could, just, before we go to the companies, let’s just, o- one last point on uranium and why it’s such a unique asset class and why funds both that are managed at Horizons like Harrah. And I know you have a portion of that is actual commodity underlying as well as the stock.

[00:33:08] Mike Philbrick: Yeah. Yep.

So you’ve got a nice mix of those things, so you don’t… So if you’re an investor, you can buy it all in one spot, but maybe highlight the sort of the unique nature of the uranium commodity market before we go to the

[00:33:19] Nicolas Piquard: companies.

Yeah, no, uranium is u- is really unique, in, in the sense that first of all, as you say, there’s no futures market, so there’s really no way for speculators to really make markets in it. And so what ends up hap- a- and these cycles are very long-term cycles, in the sense that, most of the buying and selling happens for long-term contracts, so there’s not that much discovery in the short-term market. And because there’s not that many participants, there’s not that much price discovery in the short-term market prices can really move a lot more on the short end that they would otherwise if there was a liquid if there was a liquid market.

And the other thing is, it’s a very long cycle in terms of the bulls- the bull markets and the bear markets. If you look at oil or if you look at, natural gas, it’s relatively easy to increase production if the price moves up. So right now we’re in a very distinct situation. But for the most part, if the price of oil goes up, you can start producing more oil, drill more oil. There’s the lag is not huge in terms of getting more production out there.

But with uranium you make a decision to build a uranium mine that takes a long time getting it to production. Everything takes a long time. You, it takes 10 years to get that project up and going, sometimes more. And similarly, so that’s the supply side, that takes a long time. And similarly, on the demand side, it’s very long cycles. With nuclear power plants, just building them takes 10- five to 10 years. And then once it’s up and running, it’s up and running for 40, 50, now-

… 60, 70 years. So these are very long-dated cycles, and so it ends up being very- when the bull markets, they get really high and then they get, and then you get very low bear markets. And so we had this bear market that lasted for, eight years or nine years. And I think we’re still at the beginning of a long bull market.

[00:35:41] Mike Philbrick: Now over to you, Pierre, for the-

[laugh] the companies.

I don’t know if you had any specific I dunno if you had any-

Yeah.

… specific company or the questions you-

[00:35:47] Pierre Daillie: You, there’s the two there’s the two largest producers Cameco and Kazatomprom. And I think you talked about Kazatomprom in the beginning, about how the the stock price was down 50% because of the reaction to, to the policy threat. Because Kazakhstan is a former Russian Republic, but, and then how that sort of turned into an opportunity for investors getting at those levels because of the change in sentiment.

Yeah,

[00:36:22] Nicolas Piquard: no, so absolutely. And I think, K- Kazatomprom, at these levels these price levels, relative to where the price of uranium is, they are the low cost producer. And, with, or uranium at $60, if you’re buying at Kazatomprom today at this price you’re pricing in a lot of political risk. I think that, if it wasn’t for the political risk, the price would be a lot higher. And so I, I think that if you feel comfortable with that risk then you know, it certainly, it seems to be, me, it seems to me that it’s certainly an opportunity.

And if I if I look at the HRA ETF, the only reason it’s not at new highs today relative to where it was in November is because the Kazatomprom price has come down so much. You look at Cameco, it’s at new highs, you look at the uranium price, it’s at new highs. And, but I think there’s also some opportunities in some of the smaller names. The smaller names, they initially did extremely well on the initial, and then they they’ve settled down a little bit.

And I wouldn’t be surprised too if Iranian price keep going the way they are, they’re gonna, they’re gonna pay some catch-up. One of the tricky part with uranium companies, of course, is right now, there’s really only a handful of companies that are actually producing uranium.

And so for a lot of these other companies there is some risk in terms of building the mine and producing, and there’s all these risks associated with going through that process. And, that’s why I always advocate for a diversified portfolio approach where you’re buying a lot of these different companies and projects and so that if one, one doesn’t work out you’re still benefiting from all the ones that do.

[00:38:27] Mike Philbrick: The o- the other thing that I- I’m reminded of as you talk about Kazatomprom is the the deep water horizon debacle that occurred where BP was marked down an awful lot because of all the potential risks and the choice you have, there’s risks. If you’re gonna go and find a bunch of junior producers that are looking for projects, trying to develop them, get them to production, that’s a whole set of other risks.

Sure.

There’s regulatory risk in there. With Kazatomprom, you don’t have those risks, you have political risk-

Yeah.

… but you know that the commodity is there, it can be produced, it can be delivered. So it’s just a slightly different set of risks that, I think would be quite complimentary in a portfolio. I like you would opt to have both. If you go back and look at BP, it was steeply discounted, and then recovered through time. And that’s, it’s again, there’s risks everywhere and you have to, factor in the risks you want to take. And if it’s a political risk in there, is an interesting one to consider, especially given the current valuation.

It’s an interesting paradigm where if everyone’s running out of the theater ’cause someone’s yelled, "Fire" you might wanna pick up a ticket or two. I don’t know.

[00:39:43] Nicolas Piquard: [laugh].

[laugh].

Exactly. Exactly. And and a lot of investors have really said, "Okay I’m just gonna buy a Cameco because it’s the biggest one and it’s in Canada, and it’s it’s fairly liquid." So for bigger investors, they might just think the liquid is there." but the fact of the matter is, you look at the uranium space today and a lot of these, a lot of these investments are becoming more and more liquid. There’s more and more liquidity now in the s- the Sprott Trust, there’s more liquidity in the ETFs than there was before.

And, Cameco is a great company, I think they’ll do great. But if you look at their two biggest assets you have Cigar Lake, which is probably gonna run out, in the next 10, 15 years, and then you have McArthur River, which, that’s their, factor of operation, but it’s a complicated mine and they shut it down four years ago because the market was bad, but also because it’s a tough mine. And they’re gonna have to restart that. That- that’s not a zero-risk event.

And I wouldn’t be surprised if Cameco has to go in or if Cameco wants to acquire other companies and say, now that our stock price has done so well why won’t I go and use my paper to secure more supply down the road?" so I, I think there’s gonna be, I think we’re gonna see some activity-

Yeah-

… i- in the

[00:41:18] Mike Philbrick: space.

I think you, you nailed it in that why… So you’ve got, you’ve outlined the two mines that Cameco has. If you buy one company, you got those two mines and you’ve got one set of risks. To me it makes a lot more sense to diversify that across a suite of exposures, both small cap, large cap, and some of the commodity, which is why, I think the Harrah ETF is particularly novel in that approach, in that it has taken a sort of a very-well diversified approach so that the investor knows if Kazatomprom or if a company has trouble, my whole portfolio isn’t in the dumpster fire, which by the way, all of those arguments about Cameco you could make for Kazatomprom, other than, okay, the jurisdiction is a little bit dodgy, but it is, lowest cost producer and on. So it’s hard to ignore that.

And then you throw in, "Hey, by the way, we just put it on sale." Okay. Again, divers- diversity through your portfolio is a benefit often, it, Yeah. Nick, apart from y- you mentioned that a lot of, there’s a lot of s- state sponsorship of development of nuclear. What do you see happening in capital markets in terms of money being raised for, private sector endeavors around uranium? You mentioned Sprott, you mentioned some of the activity that, that sort of triggered the horizon and price of the commodity this last year, but what kind of activity are you seeing in terms of investment banking?

[00:42:50] Nicolas Piquard: Yeah, I think there’s a little, obviously more activity now that the prices have recovered. And the junior miners they’re always gonna be looking for capital just to f- forward their projects. And so we’re seeing some of that. But what I haven’t seen as much as I thought is a lot of M&A activity in terms of companies tying up or some consolidation of projects and whatnot to create like bigger bigger more diversified companies and whatnot.

There’s been a few things here and there, but I don’t I think that’s a sign that we’re not really in the thickest part of the bull market yet. We seize the regular kind of money raises from the juniors, to forward, like I need 5 million bucks to do a PFS or, [laughs] or something like that.

But we ha we, we haven’t really seen big deals or big M&A activity yet. And I, so I think yeah, I think that’s likely coming though.

[00:44:10] Pierre Daillie: So altogether, very positive fundamentals on, on-

[00:44:14] Nicolas Piquard: Yeah, no, a- absolutely. And I think one of the reasons that we haven’t seen a lot of that is ’cause people don’t wanna sell yet. If you have an, if you have a good project that you’re, you’re slowly bringing to, production, why would you wanna sell? Right now the outlook looks very good. You’re gonna wanna, you want to k- keep most of that upside. Once the MA- once the M&A activity starts in earnest and you’re starting to see a lot of companies sell, that’s maybe when you wanna start to be a little bit more concerned.

[00:44:46] Mike Philbrick: I was wondering if we’d switch gears to another commodity that doesn’t have a futures contract underlying it, where investors can get access as well. So I don’t know if we could-

Let us talk about lithium.

That’s it.

[laugh].

[laughs].

[laughs].

So we got all kinds of alternatives, this should be the alternative energy show today. But yeah, let’s talk about lithium, Nick.

[00:45:07] Nicolas Piquard: Yeah. I think lithium is interesting because it, it’s an amazing demand story. You look at the demand on lithium and how it’s really s- started to grow exponentially, in the last, couple years and, it, it always was gonna be that way, but I don’t think the market really woke up to it until recently. And you’ve seen price of lithium carbonate go from, up five-fold, in the past. Si- eight months or so.

And, it’s, whereas battery prices had been going down for consistently since 2012, basically down almost eight, 80, 90% on a dollars per kind of kilowatt-hour basis. There, that finally was up this year because of the price of lithium. And the high prices of carbon, the high prices of oil in particular, in gasoline, the, the big thing is, of course, the price of gasoline in the United States, where they’re used to getting really cheap gasoline and it’s only gonna increase the, and the speed at which people will be converting to, to EVs and what and what that entails in terms of demand for lithium.

[00:46:48] Mike Philbrick: And Lithium’s, again, ano- another one of those very unique commodities where there isn’t an easy way to get access, right? There, there isn’t a future’s market, there’s not that type of s- type of stuff. So how have you guys thought about that in structuring the ETF that, that you’re running and how do you approach that?

[00:47:05] Nicolas Piquard: Yeah, and it’s interesting because the lithium ETF in a lot of ways as a commodity, like you mentioned, it looks like the uranium ETF. It’s a market where there’s not that many big companies that produce, that are pure-plays on lithium. And there, there is a very E-li- there’s no futures market, there’s an E-liquid spot market, but most of the activity happens in the long- long-dated contracts between battery manufacturers and between the miners.

And I would’ve ideally set up the lithium the exact same way they did as we did HURA, which is some spot exposure through a company that owns lithium and s- and the stocks, unfortunately, we don’t have any companies that, that do that. And so basically the ETF just focuses on the lithium miners. But one of the things that we didn’t wanna do is have something that’s too integrated. We didn’t wanna have the ba- battery manufacturers in there, we didn’t wanna have the EV companies in there. We really just wanted to focus on the commodity itself, so that it’s a commodity-related ETF. It’s not a bet-

… on electric vehicles, it’s not- it’s really just a bet on the commodity. Because high lithium prices might mean that battery manufacturers get squeezed. Because on the one hand, EV companies, they’re not, they’re gonna say we’re not gonna pay more for this battery. We need to stick to our sticker price of, $50,000 for this car. And so we’re gonna pass, we’re gonna force you to take the costs." and so you, I could see a scenario where the battery guys get squeezed a little. And we already see that from Tesla. Tesla’s already basically said-

… We gotta vertically integrate this because [laughs]-

Yeah.

… we don’t wanna be on the hook for these fluctuations and lithium prices. So we… They, I wouldn’t be surprised if they made a big acquisition of some lithium deposits and try to vertically integrate themselves so that they’re sheltering themselves from the volatility in, in, in the lithium price.

Yeah. Yeah.

But in the short-term, there’s just not enough lithium being produced today.

Yeah.

[00:49:32] Mike Philbrick: As you were saying that, I thought that exact thing, what a great hedge to your Tesla position, or-

Yeah.

[00:49:38] Mike Philbrick: … What input, auto manufacturer name here, in that-

[laughs].

[00:49:42] Mike Philbrick: … You’re gonna buy a suite of these producers of this very highly desirable product. So we’ve gotta, we’ve got the demand side, obviously, exploding, we’ve already seen a five X on the lithium price. What- what’s the supply side looking like? So you mentioned there’s just not enough being produced. What’s the gap like, and what do we see in projects coming on board and investments in that area? It’s a little bit different from the uranium and that uranium was going through this sort of cloud of Fukushima period, where Lithium’s been a little bit more in the sunlight for a number of years.

Yeah-

[00:50:17] Mike Philbrick: But how has that differentiate on the supply side, or has it?

[00:50:19] Nicolas Piquard: Yeah, it has been, and so I think there’s been potentially more projects, more investment in lithium. But I think for the most part industry thought that it would be, slower, the demand curve would grow slower. And so even though there’s lots of projects and lots of lithium being produced, it’s not growing fast enough relative to where the demand is growing from. Most of the lithium y- reserves are in Latin America, they’re in Argentina, Chile, and Bolivia in their salt flats where you can get lithium brine extracted.

Albemarle, SQM, they all have, the- they’re the biggest lithium producers. They all have projects in that area. But I think where we’re gonna see the biggest growth, and ’cause I think that’s one of the you, where the Chinese are really getting involved as well, is in Australia and the spodumene lithium deposits. ‘Cause that’s, in a way, that’s more conventional mining. It, it’s open pit, scoop it up, it’s a rack- it’s, the lithium’s in a rack as opposed to in, in a brine.

And a lot of these big projects are coming online from that perspective. There’s- there, but what we saw recently is more and more recently one of the, one of a big company out of Australia IGO took a 50% stake in a big lithium mine the Greenbush mine in Australia, realizing, "You know what, this is mining, this is something we know, we mine other metals, we mine cobalt, we might nickel we know we we, these are battery metals that we want to be involved with. And so it just makes sense for us to add that as part of our as part of our portfolio."

And whereas I think the brine, the lithium brine projects, that’s been more specific to companies that kind of specialize perhaps in that. And so we’ve seen Albemarle, we’ve seen SQM. These are companies that don’t that really focus on lithium, but now we’re seeing some bigger mining companies getting involved in these spodumene projects.

[00:52:52] Mike Philbrick: And so where are we with valuations? That sector has had a bit of a pullback in the last sort of call it six months or so maybe, four or five months.

Yeah.

[00:53:02] Mike Philbrick: And so where are we at with valuations? Where were we at? Where are we now? How do you see them growing into those valuations, if that’s the case, or what are your thoughts there?

[00:53:10] Nicolas Piquard: What’s interesting is that even though we’ve seen the lithium prices, basically as like I said, even though they’re up, five times in the, on the short-term price, what’s a little less clear is, what the long term, what that’s gonna mean for the long-term price. But certainly the stock prices haven’t really reacted that much to this huge boost in prices. They’re up, but they’re not up like they would be if people were pricing in the current lithium prices in, in a kind of in a NPV model.

So there’s a couple reasons. Obviously there’s a lot of lithium and so in the world and so maybe it’s just a matter of funding these projects and getting ’em outta the ground. And people think that maybe the price will come down. And there’s also a little bit of political risk, which is something that you gotta maybe worry about in Chile right now, they’re rewriting the constitution, they had these they had the new president of Chile is used to be a student firebrand.

There’s always some fair mongering going on. They said that about Lula when he got elected in Brazil and it turned out, he was, he wa- everyone thought he was gonna be the next Chavez, and it turns out that he was he governed in a much more left of center-type government, and he and Brazil economy and stock market did fine. But there is some risk with Chile that, they say that they wanna potentially nationalize copper and lithium mines, and they’re one of the largest lithium producers.

Th- and that’s why, again, you want to have that, that diversified approach where you’re not taking risk on just one jurisdiction or one company. But more than the, more than the supply, I think the s- more supply will come online. But I think, whereas I think uranium is both a supply and a demand story I think lithium is really a demand story. I think the demand-

Yeah.

… could just really explode. Next year, according to Bloomberg research, the outlook for next year is to sell 10 and a half million vehicles electric vehicles for next year, which is 50% more than what, what was sold in 2021, and also, and I think three times more than what we had in, in 20- 2019. So th- that’s huge growth.

But 10 and a half million versus the number of vehicles in the world today-

[laughs].

[00:56:02] Nicolas Piquard: … That’s nothing-

Yeah.

… that’s a drop in the bucket. And even with just that growth the market is already buckling. [laughs] they could already can’t handle that, th- that kind of demand. The Chinese are running around trying to secure supply by buying projects and getting involved wherever they can to secure supply and we’re at 10 and a half million. What happens-

Yeah.

… when we get to 20, 30 million? I mean-

A hundred million.

That’s next [inaudible 00:56:32].

Yeah, a hundred million. These numbers-

[laughs].

… these numbers are big. Yeah.

Yeah.

There’s-

[00:56:39] Mike Philbrick: That’s 2024 [laughs].

Yeah. Yeah. And they’re just, they’re big numbers, but they’re small in the context of the-

Yeah.

… overall car market. They’re minuscule still.

That’s what I mean.

[00:56:45] Nicolas Piquard: Yeah. It’s still-

Yeah.

[00:56:46] Nicolas Piquard: It’s still only I think in China, which is the biggest market in terms of EVs, in terms of EV pe- penetration, I think it’s up to close to I’m- I gotta check my numbers, but it- it’s somewhere between 10 and 20%. I’m being fairly wide here. But if you look at the United States, it’s only three-and-a-half percent, it’s less than 5%. That means, that’s a lot of cars.

[00:57:14] Pierre Daillie: Sure. If we’re all driving EVs in 2030-

I’m driving

[00:57:19] Mike Philbrick: one now [laughs].

[00:57:20] Pierre Daillie: … There’s one car for every man, woman and child in the US. Or?

[00:57:24] Nicolas Piquard: I I’ll be jealous every time I go fill, fill up at the tank, I’ll be thinking about you, who’s basically fueling up for nothing [laugh].

I will, yeah I will say my personal experience is that on- once you do drive an electric car, you will have trouble going back to a petrol engine other than the sound, the nice roary sound that you could get from a nice sports car or whatever, but yeah, it is an interesting set of scenarios there where you get in it, it’s a better drive. If you wanna go for an eight-hour drive, maybe not, but [laugh]-

Yeah, no, absolutely.

[00:57:57] Pierre Daillie: Then you have to stop somewhere and take a-

Yeah.

… take a, half-hour, 45 minute break. Yeah, get a charger. But everyone will, again, as the acceptance rate increases, everyone, that’s gonna be just a normal thing or the range will get lar- longer and certain folks will be opting into whatever range they want, paying more or less for that in their vehicle.

[00:58:18] Nicolas Piquard: One of the, one of the other things that, because we mentioned the demand side, but, and one of the things we talked about with uranium was the political support. The political su- support for EVs is more unanimous than it is for nuclear. Nuclear is still a little bit divisive. I think people are coming along but it’s still not unanimous. Whereas EVs is becoming close to, as close to unanimous as you’re gonna get an anti-political debate.

And, the number of countries that have set hard targets between 2030 and 2040 or 2050, in terms of saying, "We are no longer gonna allow the sale of internal combustion engines after this date" means that, there’s a very distinct timeline by which you have to get all this lithium out of the ground. And I, that’s one thing the pol- politicians don’t necessarily think about, is the process by which the market is gonna a- allow for that for that kind of growth.

Love

[00:59:23] Mike Philbrick: it. Is there anything that we’ve forgotten to ask you about lithium?

[00:59:27] Nicolas Piquard: No, I think we did a pretty good job of of covering it. I think yeah, I think lithium is really a huge d- demand story. The one thing, just to put it in order of magnitude, I always like to, for the last kind of 25 years, we’ve gotten pretty used to portable computers and s- and laptops-

Yeah.

[00:59:48] Nicolas Piquard: … And smartphones. And so we all know lithium, we all have lithium batteries around us. We know how u- useful they are, but if you look so, lithium demand has been growing for a long time, but if you compare the order of magnitude, a laptop uses eight lithium cell batteries an average EV uses 5,000, [laugh].

Tha- that’s just the order of magnitude-

There you go.

… We’re looking at. I mean that, everyone has a car and portable computer, but that car is gonna [laughs] require a lot-

Yeah.

… more lithium.

[01:00:23] Pierre Daillie: That’s the story. The story is that I like your point, Nick, is that, this story is unfolding right in front of our eyes. We’re but maybe we’re taking it for granted a little bit, or we don’t understand the fundamentals of the lithium market, but it’s an amazing story. To forego it because of a misunderstanding would be would be terrible.

[01:00:50] Nicolas Piquard: Yeah. It’s one of the- it’s gonna be, I think, one of the huge trends of our lifetime, just the adoption of, internal combustion engines was-

Yeah.

[01:01:01] Nicolas Piquard: … The first time around.

Yeah. The adoption of the laptop, portable computer, right?

[01:01:08] Mike Philbrick: Yeah.

In, in, in the lithium use. Now, I wonder if, so we’ve talked about two kind of very interesting alternative energy plays that are a little bit different, very early, don’t have, fully developed co- commodity markets and things like that. And getting into that, how are you seeing the response from the sort of ESG front on the topic of mining? Because at the end of the day, both of these products are mined. Mining is particularly dirty, it’s particularly environmentally impactful. We talked about a number of jurisdictions that have varying degrees of social government governance when it comes to human rights. So how is the sort of the investment world grappling with, "Hey, we need these products to get green."

[laugh].

But they’re dirty? And what are you seeing? Is there any movement towards, being more particular about where you’re sourcing your product from, or from the companies that it’s coming from, or a higher level of ESG accountability for those mining corporations? Are you seeing that more on a gra- on a grand scale and how’s that impacting things?

[01:02:25] Nicolas Piquard: On the corporate side of things certainly all the companies involved in lithium in particular and in uranium as well, they’re all very focused on the impact of, reducing the carbon footprint and what their product can do to help that. And, every company today, it’s been incredibly- incredible to see how focused companies today and all the mining companies are focused on ESG and showing what they’re doing to improve environment, social and governance f- for what they do.

On the investor’s side, it’s a bit of a different story. And I, I think it, it depends. Some investors s- understand that lithium in particular has to be part of EVs and it there’s, if it’s not lithium, it’s gonna be some other metal or some other… You gotta take that, you gotta mine that stuff somehow. So I think there is a realization but it and so that is certainly on the radar.

I’m not sure that translates into that much more investor demand, but it’s certainly their, they would be aware of that. On the uranium side, it’s still a very divisive thing because and we have a, an ETF focused on ESG. And the index provider the index that we follow that focuses on ESG metrics, one of the things that that they say is that they will not invest in, in uranium, because, uranium is used for energy, but it’s also used for weapons and so they feel like that doesn’t meet an ethical standard.

So it, it’s a very, it’s a very divisive issue. I don’t think there’s any consensus. Some see it as part of the transition and s- and some of them do not. But I think what we are seeing is the decision makers the people who realize, when the wind’s not blowing in the North Sea and the hydro dams run dry in Norway, there is no energy anymore. So those are the guys who say we, this has to be part of the solution." But in terms of the ESG investors, I think it’s, I think it’s a- it’s still a very split crowd there.

[01:05:19] Mike Philbrick: Yeah. It’s a sticky wicket. I know it’s a very difficult question. And, to some degree, when you’re looking at the, through the lens of ESG and in this case, environmental is what we’re focusing on to some degree. When we’re talking about mining, there’s the corporate structure, but environmental stewardship and those types of things. I wonder if we’re gonna see, for the costs, built back into, reparations of mines, or we’re gonna start to see… And that’s to say that if you would like to improve the environmental side of the governance, one way to do it is to say, "Okay we’re just not going to invest into any of these, whatever, quotation, dirty companies."

At the same time, you can make a massive amount of imp- impact improving those that have been the worst offenders, right? In the past, or improving their ability to understand the impact they’re having on the economy, and then billing that back through the commodity value chain. Because if it’s, in fact, we want to repair these, mining sites that has to be a cost that’s built in to the commodity itself in order to feed back to the mining company, in order to make these reparations. And that means-

Yeah.

… higher cost to end users of these products that have these commodities embedded in them. Is just a really, I think, probably a little early on the question, but I think we’re gonna start to see more and more of that as we see the crisis necessity change of we have to do it." And then, [laughs] and then saying, "Okay now how do we live with ourselves? What, how are we going to start to deal with the environmental impact of what we feel we have to do in order to have less oil being pumped as it were?"

[01:07:08] Pierre Daillie: And that’s a great segue to change gears again and talk about the carbon credit opportunity.

Yeah. Great.

[01:07:20] Mike Philbrick: [laugh].

Wow. We’re killing it. We’re killing it [laughs].

[01:07:21] Pierre Daillie: [laugh]. Nick, what do you, what- what’s going on with carbon credits? I, before, before we jump into that I just had to bring up again, did either one of you see the movie Anthropocene?

[01:07:39] Nicolas Piquard: Since I may-

No.

I have not. Is it good?

[01:07:41] Pierre Daillie: It- it’s, as- as you were talking about it’s great. There’s this whole, there’s this whole sequence about Germany in there, about how they’re ripping up the countryside for coal because they abandon their nuclear, they shuttered their black their nuclear facilities.

Yeah. Yeah.

But in, in what I thought was ironic, you mentioned, how much, h- how big of an employer nuclear power is in France and how much nuclear power there is in France. And then, so what was ironic in all of that was, again that while Germany shuttered its nuclear facilities, half of them they also, this year, decided not to shutter the remaining half. And they’re stuck now with having to buy, continue to buy gas from Russia.

And because of their shortfall they, they have to buy nuclear power from France as well. So they’re caught between these two powers. They’re caught, on one side, they’ve got France selling them nuclear, on the other side, they’ve got Russia in, in the middle of this war that we’re in now, selling, having to be at Russia’s mercy to buy gas and hoping that Russia doesn’t turn off the the, the-

The tap [laugh].

… tap. Yeah. And yet they’re still squabbling over nuclear. They’re still squabbling over taxonomy. They’re still squabbling over this stuff.

It-

[01:09:06] Pierre Daillie: And that and then if you come to the carbon credit situation, they’re not taking that seriously either. We had a conversation with Hugh Henry not too long ago, and he brought up the fact that BASF doesn’t care about the carbon permit system in, in Europe until those carbon permits are 120 euros or 130 euros. And they’re largely ignoring, they’re largely ignoring the not the opportunity, but the use of those carbon permits. They’re not taking it very seriously.

But so I wanted tell you, to say that was my roundabout way of segueing into the carbon permit system and the opportunity that’s there for investors to participate too. That, that’s actually a real opportunity for investors who wanna align their portfolios with, with ESG in a very direct fashion. The carbon permit system does allow for that.

[01:10:01] Nicolas Piquard: And the European carbon market is probably the most liquid and most developed carbon market in the world today. There’s still, there’s other systems in California, and a few others jurisdictions. But Europe has really led the way on on the European, on formalizing kind of a market for it. And the price of carbon has gone up substantially in the past year, along with everything else.

One of the side notes I would add on the whole Germany situation that you were talking about earlier is that, on top of, having to mine more coal because they shut down their nuclear power plants, they also spent a vast amount of money on their energy wind initiative-

[laughs].

… that was supposed to basically make up for the loss of nuclear in terms of emissions. And after something like eight years and billions and hundreds of billions, I think of money spent they have very little to show for it in terms of reduced emissions, and basically still have double the emissions that that we have, that, that they have in France which has, very little wind or solar, and it’s, most of their zero emissions are coming from from nuclear.

Yeah.

[01:11:35] Nicolas Piquard: But even that won’t change th- their mind. I think the, it’s ingrained in the German psyche to be against nuclear. I don’t really… There is some signs of that changing but, for the most part they- they’ve been steadfast. It, it started in the seventies when they were, they didn’t like the nuclear war prospect with East Germany which was their neighbor. And they, it continued with Chernobyl and it really, at the-

… After that, it, they never really were able to come around. But in terms of the price of carbon, the price of carbon has gone up, I think something like three times in the past year, and really it’s just been tracking the price of natural gas in Europe ’cause what ends up happening what ends up happening is to reduce your carbon emissions effectively you re- reduce your coal consumption and you burn natural gas instead, and that reduces your emissions by 40 to 50%.

And but once your natural gas price goes up too high, then it becomes profitable to buy coal and then buy the offsetting carbon credit-

… and then burn coal instead. And so as natural gas prices has gone up because the demand has gone up and now of course has gone completely parabolic because of what’s happening in Russia effectively, it’s just cheaper to buy coal and buy your carbon credit. And that’s what’s happening in the market. And it puts a floor on those carbon credit prices, ’cause there’s not much more, there’s no more, natural gas coming and there’s still growing demand for energy. And Germany is a bit of- in a bit of a tight spot.

Yeah.

[01:13:37] Nicolas Piquard: We’ve seen a lot of volatility in the carbon credit market recently, most, obviously, because of the volatility in natural gas prices, but also, because now this energy crisis has become a huge political problem for all governments. They’re out handing a hundred dollars checks to everyone so they can fill up their tank. [laugh], it’s become a real problem. People can’t afford to live anymore with, because energy goes into everything, it goes into food, it go- it goes into your production of any good, it goes into transportation-

… it goes into, and obviously goes into your daily living of moving around. And so the cost of living has gone up massively everywhere in the world, but in particular, in, in Europe because the price amount of electricity has been so high. And now they’re like, maybe we gotta re- we gotta do the opposite. We gotta re- maybe we gotta rearrange these carbon credits to make it cheaper so that we can get cheaper energy."

[laugh].

[01:14:37] Nicolas Piquard: So there… And and that’s causing, ex- you know, excess volatility in the market as well. ‘Cause now like investors are looking, "Oh what if the government’s decided, you know what, we’re just gonna hand more credits. We’re gonna hand- increase the supply of these credits and go the other way because we’re worried about high prices?" Which of course is the exact-

Yeah.

… opposite thing that they should be doing because these high prices are really incentivizing the move to renewable, clean energy.

[01:15:13] Pierre Daillie: Yeah. They’re trading actual carbon for paper carbon.

[01:15:18] Nicolas Piquard: Exactly.

Yeah.

Exactly.

Yeah.

So I think long-term level heads will prevail and the price… ’cause one of the interesting thing about carbon credits is the whole way by which they would work, is over time, you would reduce the amount of credits available so that effectively you emit less and less carbon over time-

… to eventually get to net-zero which it’s almost like even better than Bitcoin. It, forget the stable supply, you’re gonna have shrinking supply.

[laughs].

[01:15:53] Nicolas Piquard: Is gonna be like, potentially a Bitcoin on steroids. But there is political risk, ’cause just like Bitcoin, you just create another coin. [laugh].

[laughs].

[01:16:04] Nicolas Piquard: Or you could just branch out and, build your own Bitcoin cash or, just do… And so that- that’s one of the… There’s a lot. There’s, it’s a fairly new market. I think investors are still getting used to the idea. But certainly an asset class that, that potentially is fairly uncorrelated to other assets, although from the looks of, it’s still energy, energy- dependent. But-

[01:16:42] Mike Philbrick: Given that how has, how has- Horizons has structured the carbon credit ETF in order to facilitate participation for investors and what are the top sort of two or three questions you’re getting or fielding from investors?

[01:16:57] Nicolas Piquard: Yeah. So I think when we first started looking at this carbon credit idea for an ETF, we started thinking, "Oh we should have maybe buy the credits themselves or, figure out a way to s- structure it." and then it, at the end of the day, we- you know a lot of our products at Horizons are futures-based and we thought, this is the cleanest and most effective way to, to do it right now, is to just have a futures- based ETF."

And so what the ETF does, it just buys the European market, the European futures market it, and uses that future’s market to gain exposure to the carbon market. That doesn’t mean that over time if more markets become liquid and that are become more investible perhaps at some point we you could expand to be to be, to get into more markets.

But for now the European market is really the most liquid and really with an excellent opportunity. Because, the Europeans are quite committed. You look at the green taxonomy, you look at all the work that they’ve done to get this market up and going. And what’s nice about Europe, which is also the reason it’s not great to be in Europe, is extremely hard to do stuff. Like you gotta get all the governments to agree, yeah, they all have veto powers. It’s almost impossible to do anything. But once you agree, it’s almost impossible to undo it [laugh].

[laugh].

[01:18:45] Nicolas Piquard: So once it gets past the finish line, it’s very hard to undo. That’s one of the

Yeah.

… reasons why, the, once the green taxonomy with the nuclear, as one of the alternative energies that’s included in it, that was very hard to get through the finish line. But now that it’s in the, now that it’s made it it’s gonna be very hard for it not to go forward.

And that’s, same thing with the carbon credit markets. I think it’s gonna be, now that they’ve agreed on the system, nobody wants to go back and renegotiate with all these different countries and say, "We gonna do this. We’re gonna do that." So I think that’s a very… Where is other jurisdictions, maybe if there’s a change in government, you just say we don’t like it." [laugh].

What if, what if, Trump comes and he’s "I don’t like these carbon emission initiatives, I’m just gonna go the other way." you’re at the mercy of one administration.

With with Europe you have all these countries that agreed and they all have to disagree- you know, agree to disagree or agree to undo.

Agree to

[01:19:57] Mike Philbrick: disagree in the same way, to undo [inaudible 01:19:59]-

Exactly. Exactly. Exactly. Exactly.

If you thought it was hard to agree on something, wait till you agree that you made a mistake or wanna modify it.

Yeah.

I don’t know what it is

[01:20:08] Pierre Daillie: anyway.

[laugh]-

But you have dec- decision by committee basically. Yeah.

Yeah. Yeah. And and so I think that this market is gonna stay I th- you know, and I think they’re they don’t, they’re, they’re gonna let the market price carbon and as proponent of free markets, I think that’s a great way to do

[01:20:37] Mike Philbrick: it.

Yeah. And it’s a great way for companies to commit to and have a way to curb their exposure in that area. If they’re producing whatever, carbon or offsets and things like that, then it’s a way for the market to put a price on what that is and for that to be factored into the cost of production.

Yeah exactly.

[01:21:00] Nicolas Piquard: And I, I’m not sure how the, how quickly or how the penalties and whatnot, I’m not entirely sure how the- they’re gonna fully be able to implement that. You mentioned BASF not being too careful there. I think that as time goes by this is gonna be coming more and more relevant. And and, companies don’t want to- these days companies don’t want a black eye on ESG matters.

I’m always surprised not surprised but I’m always interested to seeing if you go to any company website today, ESG is the first thing yeah. Yeah. Amazing. That is quite a gamut-

[01:21:54] Mike Philbrick: Yeah.

… we have run.

[01:21:56] Pierre Daillie: Three alternative assets, just ripe for investment. That’s [

[01:22:04] Nicolas Piquard: laughs]-

[laugh].

[laughs].

[01:22:04] Pierre Daillie: It’s like fruits are laying on the ground, it’s just laying on the ground.

Long-term, long-term investment. Not advice.

[01:22:11] Mike Philbrick: It’s not advice.

[laugh].

[laughs].

Ah, beautiful. Beautiful.

Just there.

Nick, that was awesome.

Yeah. That was awesome, Nick. Where can people find you if they wanna look you up and follow you and see what you’re working on?

[01:22:21] Nicolas Piquard: Sure. I yeah, they can go to the, our website at Horizons Horizons ETFs and we have a blog there that, where we discuss some of the stuff that we’ve been talking about today. And yeah, so that’s probably the best way. And yeah and take a look at it. We sometimes do webinars for investors and whatnot on the, on various topics. Yeah, definitely, k- keep an eye out for those as well.

Perfect. All right.

Thank you everyone.

[01:22:56] Pierre Daillie: Who’s your favorite character, Nick, from Atlas Shrugged? [laugh].

[01:23:00] Nicolas Piquard: I don’t even know to be honest, I’ve never even never even read the I’ve never re- I’m embarrassed to say I’ve never read the book, yeah.

[01:23:08] Mike Philbrick: I always get my characters confused from The Fountainhead and and-

Yeah.

… Atlas Shrugged. So I’m- I always say that. Anyway [laugh].

No, you- while you-

John Galt [laughs].

[01:23:18] Pierre Daillie: When you were [laugh], when you were talking about just, and we’ll wrap on this, but when you were talking about, the political risk in Chile, it reminded me of-

Oh, yeah. Yeah.

[01:23:28] Pierre Daillie: … Of the the part where-

The oasis?

Yeah.

Yeah.

Where Francisco d’Anconia draws all of the inteligencia of Atlas Shrugged into buying, investing in the Chilean copper mines. And there they are, they’re all at a party together and they get the news flash that, that Chile has nationalized all of their interests.

Of course.

[01:23:59] Pierre Daillie: And but, it’s the times too. Look at the infrastructure that is dilapidated the the way that political power is being wielded today with with Putin. And so there- there’s just so many parallels that are happening again, and from a book that was written in the fifties. Yeah.

[01:24:29] Mike Philbrick: Don’t they happen over and over again? I remember one, one of my one of my favorite quotes from Francis d’Anconia. What

[01:24:37] Pierre Daillie: is it? D-

Francisco d’Anconia.

D’Anconia.

[01:24:40] Mike Philbrick: Was, if you run into a contradiction, check your premise-

Yeah.

… you will find one of them is false.

[laugh].

Yeah.

Love that. It’s-

[01:24:48] Mike Philbrick: [laughs].

… it’s so true. "Oh, I have a contradiction." Yeah. Check your premise-

Yeah.

[laughs].

… one was wrong.

[01:25:26] Nicolas Piquard: [laugh].

[laughs].

[laughs] awesome. All right.