Tribeca Nuclear Energy Opportunities Fund

Funds Management

by Melissa Darmawan

Tribeca Nuclear Energy Opportunities Fund Portfolio Manager Guy Keller discusses the background to the fund and its investment approach, its performance over 2020, and the outlook for the nuclear sector.

Melissa Darmawan: Hello. Melissa Darmawan for the Finance News Network. Joining me from the Tribeca Nuclear Energy Opportunities Fund is Portfolio Manager Guy Keller. Guy, welcome to FNN.

Guy Keller: Thanks for having me.

Melissa Darmawan: You're welcome. Now, could you start with an introduction to the fund and what it offers to investors?

Guy Keller: Sure. So, the Nuclear Energy Opportunities Fund is a wholesale Australian unit trust, and we aim to capitalise on the nuclear sector, primarily through uranium mining. We're attached to our flagship Global Natural Resources Fund. So, we're all, by nature, mining specialists. And we've just identified a huge fundamental mismatch between supply and demand and an asymmetric investment opportunity that's going to extend into what we think is quite a prolonged cycle.

Melissa Darmawan: And Guy, before we talk about the fund, can you provide some background on the nuclear energy sector?

Guy Keller: What we're seeing and what got us excited is that you've seeing the largest reactor build program in decades, at a time where we've had a very prolonged 10-year-plus bear market in uranium, which has meant that, like broader resources, there's been a huge underinvestment in new capacity. The reactor build program's being led by China, and the energy input, being uranium, is a commodity that China is short. We've seen plenty of examples over the last 20 years of this China cycle, where commodities that they are short benefit over the long term from their structural changes into those products.

Melissa Darmawan: Now, to the fund in more detail. Can you tell us more, starting with the investment approach?

Guy Keller: As part of our broader global natural resources, we start top-down and we look at commodities and what's interesting, and that forms a batting order. Uranium was flagging very hot on a number of indicators that we look at. The market capitalisation of the sector because of 10 years of underinvestment is very small. So, we spun out this fund to focus primarily on that sector. And as I said, we now look bottom-up at the uranium miners, and there's a number of different ways to, depending on where they are in their process, and whether we think they're going to come to market, whether they've got good prospects in drilling out. There's a whole raft of measures that we look at in order to help us come to our investment decisions.

Melissa Darmawan: And can you talk a bit more about the portfolio exposure?

Guy Keller: There's only two or three actual producers of uranium in the market at the moment, which again, is one of the really, really big reasons why we're so excited about the sector. So, we do have some exposure to them. There is a number of brownfield and care and maintenance projects that we view as next to come to market. However, they need higher prices as well. And then obviously there's developers and explorers. We break them down to a little bit of Africa, Canada, Australia and the USA, as to how we sort of look at those jurisdictions as well, because jurisdiction is very important when it comes to uranium.

Melissa Darmawan: How about performance?

Guy Keller: In the calendar year of 2020 last year, we had a remarkable performance. We returned 195 per cent performance, net of fees, to our investors, and already the first quarter of this year is shaping up to be a very solid return there as well. And as we get to the end of March where we'll mark that off, it'll be the fourth quarter in a row of very solid performance, after almost three years in operation of the fund.

Melissa Darmawan: And, Guy, safety has always been an issue where nuclear is concerned. What progress has been made and what is the political will for nuclear power?

Guy Keller: That's a really good question. I mean, obviously, we're on 10 years remembering the nuclear accident, Fukushima, that came about as a result of that tragic tsunami in Japan. And there's been a huge amount of progress being made. I mean, the nuclear sector as a whole is the most regulated commodity and sector in the world. And it's only got more regulated and more scrutinised as a result of Fukushima. And, as well, the technology advances that we're starting to see come through in the latest reactor designs, as well as some of those advanced designs coming through in the next sort of decade or so.

As for the political will, quite simply, the world is responding to the decarbonisation, electrification mantra, as well as looking at an ESG angle. And the political will is that... The Biden Administration, for example, two years ago, you would have laughed at me if I'd said that they were going to include nuclear power. I mean, now they're saying it's essential. I mean, the US produces 20 per cent of its electricity from nuclear, yet it's 55 per cent of their carbon avoidance. And when you look at, say, for example, the two reactors that are being built in Georgia right now, completing in the next few years, there were some statistics out there that they'll produce more carbon-free electricity than is currently being generated by the 7,000 wind turbines in the State of California. And over their 60 year... Remember, these are really long-life assets, 60-year lifetime, they'll avoid the release of 600 million metric tons of carbon dioxide.

So, that whole decarbonisation push is what is driving the political will globally to at least maintain the nuclear fleets. And then, as we're seeing in more of the eastern countries, pushing really, really aggressively to build out a nuclear fleet in order to meet those goals that every country is setting.

Melissa Darmawan: Last question, Guy. What key message would you like to leave with investors?

Guy Keller: We've seen some obviously, last year, some fantastic returns for our investors, but we're not even at the beginning of this. At $30 uranium price, we're nowhere near the incentive price required to bring on the uranium that is required just to service the current reactors in operation. When you add in the 50 or so reactors that are being built, currently being built, you need more uranium, and none of that's coming on at $30. We conservatively estimate that you need a price between $60 to $65 for people like us to finance those mines, because remember, it's not just break-even, we want to make some money out of these investments. So, that's the incentive price, regardless of what other numbers you hear.

And really, realistically, to meet the needs of the uranium demands into the 2030s, you need probably a price of $75 or $80. So, there's a long way to go. And we're one of a handful of special investors that are focused on this space. It's a very small market right now. It's extremely difficult to get in an investment in any size. And we're already there. So, we feel that we're really well positioned for the next few years.

Melissa Darmawan: Guy Keller, thanks for your insights and introduction to the fund.

Guy Keller: Thanks very much for having me.


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