Barron's Streetwise - Is Uranium Too Hot? Plus, TV's Sporty Consortium

Episode Date: February 9, 2024

A nuclear revival has sent the radioactive metal to a 16-year high–but beware lithium's example. Also, Disney, Fox, and Warner have a new streaming pitch. Learn more about your ad choices. Visit megaphone.fm/adchoices

Calling all sellers, Salesforce is hiring account executives to join us on the cutting edge of technology. Here, innovation isn't a buzzword. It's a way of life. You'll be solving customer challenges faster with agents, winning with purpose, and showing the world what AI was meant to be. Let's create the agent-first future together. Head to salesforce.com slash careers to learn more. I think it's also fair to say the world basically ignored this technology from 2011 to, say, 2021. Most governments in the world,

they focus their energy on very cheap natural gas and things like solar and wind. And in the last two years, we've seen a big shift back to nuclear power. Hello and welcome to the Barron Streetwise podcast. I'm Jack Howe. And the voice you just heard, that's John Champaglia. He's the CEO of a metals investment company called Sprott. And in a moment, we'll hear from him about the epic bull run for uranium. John remains bullish. He'll explain why. We'll consider uranium's rise in the context of lithium's recent boom and bust. What is similar or different about these two

rallies? We'll also say a few words about streaming and sports. Again, I know. It's not my fault. It's newsy. Listening in is our audio producer, Jackson. Hi, Jackson. Hey, Jack. This is our Super Bowl episode, you were saying, because at the time of this recording, we've got a couple of days left until the Super Bowl. And in preparation, we're going to what?

Ignore it completely, right? That's my plan. Yeah. Some people aren't going to listen until after the game is over. So what's the point? And also, it's kind of like a lot leading up to the Super Bowl. You get the Super Bowl, this Super Bowl. Like, hey, have you heard about the Super Bowl stock market predictor?

I'll save you time. It's a load of crap. Don't, don't bother. There's no such thing. It's a bunch of nonsense. Have you heard about the people who try to purposely avoid knowing who won the Superbowl for the longest time? There's like a group of people every year who their goal is to... See how long they can make it? Yeah. And what do they do to extend that time? They like go on a jungle cruise or what do they do?

You know, you turn off the TV, you don't visit any sort of grocery store or anything for the couple of weeks after the Super Bowl. any sort of grocery store or anything for the couple of weeks after the Super Bowl. And that sounds like a pretty achievable goal, but not really a high fiveable accomplishment. I mean, you're basically saying, hey, I had no human contact for about three months there. Yeehaw. We're going to get to uranium in a few minutes. I do want to mention this new sports consortium, sports-ordium, the thing called Raptor. You've seen about this, right?

Disney, Fox, and Warner getting together and skinny-bundle-izing their sports. You follow me? You know what I mean when I say- They're teaming up, repackaging stuff, and selling it. They own a load of sports rights, and so they're going to have this streaming service. If you have something like YouTube TV where you get a virtual cable bundle, this is kind of like that, except forget about all the scripted shows, forget about the news, forget about anything that isn't sports. You're going to have the sports channels, your ESPN, your ESPN2, and ESPN this and that. And then you're going to have your local Fox and local ABC stations.

You're going to have FS1 and FS2. You're going to have TNT and TBS. So a bunch of sporty channels like these are in the bundle. And this service is aimed at, as B of A calls them, 60 million US cord cutters or cord nevers. In other words, people who have left their cable bundle or who never had one. And that is about half of the people who have broadband service in the U.S. There's 125 million of those. You might be saying, why are you talking about this one particular package?

I'm not even that into sports. We're talking about it because this could be transformative, really, for all of show business. And I'll explain why in a moment. Let me give you the basic facts of the thing. Each of the three participants will have one-third ownership. They're aiming to launch in the fall. The product doesn't have a name yet. The project is known as Raptor internally. I wrote a little column about it online at Barron's, and I did some guessing about what the name might be. Dunkopoly, Ball Control, Sports OPEC, and I'm not ruling out Fan Squeeze.

The idea here, as I'm suggesting, is that these three companies will have more control, more heft when it comes to things like the rising costs of sports rights. Jackson, just last week, I think, we used the term oligopsony, which is a market where you have limited competition because you have only a few buyers. Remember that? That was an exciting moment for the podcast. Well, I'm not going to really use that here because for that to happen, these three companies would have to jointly negotiate sports rights in the future. It's not clear that would be okay. There's a lot of this that is kind of uncertain about how it's going to work. But what we know is that each company will collect carriage fees for their channels that are offered as part of

this bundle, just like if they were selling those channels into a cable provider. We don't know the price yet. We can assume that it will be north of the $30 a month that you pay for some regional sports streaming services. We can also assume that it will be south of the $73 a month that you pay for YouTube TV, because that's that virtual cable bundle that has really all the sports people are used to getting on cable. It's important to point out that Paramount, which cbs and comcast which owns nbc are not part of this partnership so you're not going to get their sports and that's kind of a lot of sports

that's kind of meaningful sports if you're into the nfl otherwise known as the biggest draw in all of television then you're going to be missing a bunch of those games. But let's say that this thing sells for $40 or $50 a month. Then you could pay that plus sign up for Peacock, which is a service that will get you NBC Sports, and Paramount Plus that'll get you CBS Sports. Those are $6 a month each in the cheapest ad-supported tiers. And you come in at a price that's below what you'd be spending for YouTube TV. Maybe you're saving yourself $12 or $15 a month. And as a trade-off,

you got to flip back and forth between a few different services. And you got to figure out what's playing where, when, because you don't have one sort of unified, the thing we used to call TV guide, whatever we call that thing now. I call it Googling until your head hurts. Right. The companies that are involved will make some extra money from this new sports bundle. Rich Greenfield at Light Shed Partners, we've heard from him before in this podcast, he estimates that the service will cost $35 a month for the first year,

and then it'll rise to $40 a month. And of that $40 a month, he estimates that Disney will get $35 a month for the first year, and then it'll rise to $40 a month. And of that $40 a month, he estimates that Disney will get $20 a month, Fox will get $8, and Warner will get four. There'll be money that goes for expenses, of course. He estimates that there will be substantial losses for the venture early on. But he points out that because of the way the partnership is set up,

it's possible to book the fees you collect from the service on your income statement, but not the expenses. Those can become cash that comes off the balance sheet. The cost is ultimately the same, but it might look better for companies. One of the reasons this is important is because people are leaving their cable bundles. That's happening faster than predicted, actually. They're leaving at double digit percentages, and those seem to have been accelerating in recent years. One of the key reasons people stay with their cable bundles or sign up for a virtual one like YouTube TV is they want the sports. So if they have an opportunity to get a bundle of just sports, maybe they'll take it. So we don't know how quickly people will sign up for this new sports bundle, but you can imagine that if a lot of people do, they'd come right out of cable bundles.

Who would that be good for and bad for? Well, for Disney, it would solve a big problem they have. Disney makes a ton of money from ESPN. It's a cash machine. And they have to find a way of preserving that money as customers leave their cable bundle. One idea is to create a true ESPN streaming service, not like ESPN Plus, which they have now, but actually a replacement for live ESPN

that you could have as a streaming service. But we've talked about how that might be prohibitively expensive because the cost of those sports rides is so much. Well, this gives them a way to preserve ESPN's profitability, and that might relieve some investor anxiety there. Here's Disney CEO Bob Iger from this past week's earnings call. Because we know that there are a number of people who have never signed up for multi-channel television. This gives them a chance to do so. At a price point, it will be obviously more attractive than the big fat bundle. Two, there are people who have left that ecosystem because they didn't want all those channels or that cost. And this is a way of basically preserving a relationship or creating one with those that are no longer part of the multi-channel ecosystem. It's an opportunity for the other partners, Fox and Warner, but that's not quite as clear cut.

For each person that goes to this new sports bundle and they leave their cable package, they're getting those sports channels and they're paying for those, but they won't be paying for, let's say, Fox News in the case of Fox or CNN in the case of Warner. I spoke this past week with Tim Noland. He's a media analyst at McQuarrie Research, and he says this is actually a pretty good opportunity for Fox because they don't have much in the way of streaming alternatives to their traditional TV offerings. So for them, this gives them a new source of revenue. So I think for Fox, at the very least, this is an interesting extra source of revenue as it sub-licenses the content, basically sells the content to this JV that it's a part of. And for Warner Brothers Discovery, of course, they've been including their sports content on the Max streaming platform till now.

And I think it's going to extend a little bit longer, but that's not necessarily a permanent thing. They're going to start charging for it. So for all three companies, it brings more ability to sell across what is now a large cord cutting audience. Jackson, I'm in the homestretch here. I'm about to wrap this thing up. Anything you want to add about it? Yeah, Disney stock jumped after the announcement. It did. It was a big jump, actually. It's hard to tell because they also reported financial results. So it's hard to tell what portion of that is the announcement and what portion is the financial results. But I bet you a

lot of it is the announcement. Investors seem enthused about this. I think they're looking for answers about what happens with ESPN. And this is an answer. Earlier, you talked about cord nevers. Do you think this will attract some of those here to Disney? I have a hard time. Like I can see someone leaving their cable and they're fed up with cable. And this is a little bit cheaper in this era. You know, I'll save the twelve dollars a month. But if you haven't gone in for a cable bundle yet where where is the sports fan who their price sensitivity lies precisely in between let's say 73 a month and uh you know 54 or whatever it's going to come out to for for this plus the two streaming apps that you need to replicate those sports and they're going to say finally this is the price i'm willing to pay i

don't know how big that audience is. I think it might be people who just leave one for one, you know, go over from cable. I'm not sure. There are a lot of questions here, starting with how the cable companies are going to respond. The cable companies have been asking for many years for skinnier bundles. They're saying, we're having a difficult time selling TV services because you keep renegotiating the prices higher and we have

to pay it to carry the sports that our customers want, but we would love to have something skinnier. And they haven't really gotten it, but suddenly the network owners are getting together on their own and they're creating this skinny bundle and they're going to sell it as its own app, they say in the fall, or they're going to bundle it with their own streaming services like Disney Plus or Max. So the cable companies could complain about that, or they could say that's not fair. You're banding together with all this negotiating power and that's going to put us in an unfair position. And would they make that case to a regulator and would the regulator care? I don't know. If they do make that case and they're not successful, if somebody says, yes, they're banding

together, but no, we don't care, then couldn't the cable companies say, well, we're going to band together. The remaining cable companies can say, we all want to negotiate as a group for how much we're willing to pay to put these channels in our cable bundles. Would that be okay? I don't know. Basically, these sports leagues are incredibly powerful because the only place you can go to for NFL games is the NFL. That's a pretty good negotiating position. And so everybody else seems to be trying to gather together

to increase their persuasiveness or heft or what have you. We'll see if it works. The companies that might be in a difficult position here, as I mentioned earlier, are the ones that are not in the partnership. Paramount, Comcast, also smaller networks like AMC Networks. Because if this skinny, sporty bundle makes people leave their cable packages even faster, then these other companies are going to lose out. Also, think of the sports leagues which have their own media operations.

What about NFL Network? If people are signing up for the Skinny Sporty Bundle, maybe they're less likely to watch NFL Network. Also, the leagues can't love the idea of anything that even hints at a distant future of fewer buyers bidding for their content. So they would probably love to get non-traditional sports rights buyers into the mix or more into the mix. Companies like Amazon and Netflix. Rich Greenfield at LightShed, he summed it up in a note to investors. He said, we're not exactly sure what happens next, but we expect the noise level to be very loud in the days and weeks to come. Jackson, I think it's time to shift our attention to uranium. That's not really a smooth segue. It

feels more like a clean break. Feels like we should insert a break here. Have I gone on for long enough about sports and streaming? Do I need some filler here? Yes. Should I sing the national anthem? Where do you start clapping? When they play the national anthem before a game, when do you start clapping? Because I was assumed in big ballparks, you know, land of the free, you start clapping on free and you clap over home of the brave, right? That's standard procedure.

Yeah. Hitting that high note, you know, is really the crescendo there. I've been doing that lately at high school basketball games in a small town. And I'm the only one coming in on free. And people are looking. Maybe they're not hitting the note. It's a recording, but I'm just, you know, I'm going to stick with it. I'm going to see if I can record it.

No one sings. They just play a recording. It's an instrumental recording. There's your problem. I'm the only one know, I'm going to stick with it. I'm going to see if I can record it. No one sings. They just play a recording. It's an instrumental recording. There's your problem. I'm the only one coming in on free. You clap on free when there's a real person singing and they hit the high note there. That's the, that's the idea. Oh, all right.

I've got to make some adjustments. We'll be back with uranium after this quick break welcome back jackson uh we ready for uranium well you got me thinking about the national anthem, and I realize I've never heard the word spangled be used in any other context. Spangled. What else is spangled? ring to it, but you can look up how popular words are over time. It's called Google's Ngram viewer, and I've mapped out speckled and spangled. You've done some work on this. There's a time in the 1800s where they were pretty neck and neck in terms of how often they were used, and then speckled really took off in the 1870s, and spangled could never

catch up. Speckled really took off in the 1870s and Spangled could never catch up. Why do I love that detail as much as I do? I should not encourage you, but I love it. Thank you. All right. Uranium dipped in price this past week. Do we all know what uranium sells for?

Do we all know how much it costs? It's around 100 bucks a a pound. And now it's, it was just over a hundred and now it's just under. It had hit its highest level in 16 years before this recent dip this past week. And I am wondering, is uranium about to get lithiumed? And by that, I mean that lithium had multiplied more than five times in price in less than a year. That was right after the CME Group launched a futures contract for lithium in 2021. And then the price collapsed, and now it's lower than when it started. So this big run up, this big collapse, what's next for uranium? I can tell you that it's been hot as an investment trend. There are these two of the larger ETFs of uranium miners, Global X Uranium and Sprott Uranium Miners. Those two together took in more than a billion dollars of fresh investor cash over the past

year, and the assets that they managed combined have swelled to more than $5 billion. There is also, Jackson, you clued me into this. There's some meme action on Reddit, you said. They're going just like they did for GameStop. Yeah, there's a uranium squeeze Reddit, and they're pretty happy over there. I did a search. I found it.

Well, there's a lot of messages, but I found this one that I think is representative from last fall. It's got a picture of these posh young women who are sitting in a convertible and uh the the caption is get in losers we're cornering a market yeah you have to have seen the 2004 movie mean girls you're familiar yeah the mean girls i think they say get in losers we're going shopping so this is a yeah there's there's a musical that's just out it's the the reboot anyway the reboot okay so um you know that's a meme and the title of that particular

message was uranium to uranus with a rocket ship emoji by the way jackson i know that you know this already but uranium is named after the planet uranus because uranium was discovered in 1789 just eight years after the discovery of the planet. If that's the sort of fun fact you like, then you're in for a treat. Because it's spangled though. Yeah, fully spangled. Now, the bull case on uranium is that the market will remain undersupplied for decades

because we need all this uranium for nuclear power. And the bear case, there's not much of one. If you look at the companies involved, there's a big publicly traded uranium producer in Canada called Cameco, and it's covered by 13 analysts and 11 of them say to buy the stock and the other two say hold. There's also a big uranium producer in Kazakhstan. It's called Kazatomprom, and that stock has five buys and one hold. And if you look in percentage terms, that means it's more popular than Alphabet. Now, uranium, Jackson, give me some uranium primer music, if you would, please, in the background. How many seconds do I get on the clock for this

part? 25. I'm not even going to come close. There's way too much to say. No, I'm not even going to come close. There's way too much to say. Uranium's superpower is that it can produce vast amounts of energy for its size, 20,000 times as much as coal. And it is not particularly rare. There's 500 times as much uranium as there is gold. But here's the thing.

Almost all of it that naturally occurs, more than 99% of it, is what's called uranium-238, and that just doesn't have much oomph. It's what the nuclear physicists would call fissionable, but not fissile. You can split atoms and release energy if you want, but you're not going to get a chain reaction. For that, you need something called uranium-235. That number is three lower. It has three less neutrons. But uranium-235 is less than 1% of natural uranium, 0.72%. So you have to enrich it. You take the metal, you turn it into a gas, you spin it, you harvest the higher concentrations of that lighter isotope that you're looking for.

No big whoop. You don't have to go over 5% of uranium-235 concentration for electricity generation. If you want to make a nuclear submarine or a nuclear missile or a nuclear submarine with nuclear missiles, you're going to have to push up to 10%, maybe 20%. You should consult your local authorities for the rules in your area. This podcast, we're going to get flagged. And to our Canadian friends, before you email me, yes, I know about your clever can-do, C-A-N-D-U, can-do reactors that can create chain reactions with regular uranium-238.

That holds down the fuel cost. But they have to use something called heavy water instead of regular water as a moderator. So that's price here. All right, there's two key events that really moved uranium prices a lot in recent decades, and one was in March 2011. There were tsunami waves that struck a nuclear plant in Fukushima, Japan, and that disabled the system for cooling the nuclear fuel, and there was a release of radiation. Now, that release is estimated to be one-tenth the size of the 1986 Chernobyl disaster. There were no deaths, and there were minimal

health effects, but it caused the public to sour on nuclear power, and they called for early plant retirements. And uranium, which before that was over $60 a pound. It fell to under $20 a pound by late 2016. And you basically had a number of mines, including some of the highest grade uranium mines in the world, close. Because the price of uranium collapsed. Let's say in 2011, it was $72 a pound. It went all the way down to $18 a pound, at which price point almost no mine in the world

could operate profitably. That's John Ciampaglia. He's the CEO of Sprott Asset Management, which has that uranium miner ETF. You could buy uranium for $30 a pound as recently as 2021, if you go back to just before the U.S. reported unusual movements of Russian troops near Ukraine's border. We know what happened next. Russia invaded Ukraine. It began using its role as an energy supplier as a weapon, cutting off natural gas supplies. And the world turned its attention to energy security, which means it warmed back up to nuclear power in a hurry. We all learned in 2022 what happens when your natural gas gets cut off. You either have no gas or you pay 10 times for it.

Nuclear power is incredibly energy dense, which means you can store huge amounts of energy basically on site at the power station. You're not beholden to any supply shock or price shock. Here's Timothy Gitzel, the CEO of Cameco, that Canadian uranium producer, during the company's earnings call this past week. And we have a technological evolution on the horizon as well, with SMRs and advanced reactors extending the use case for nuclear beyond just electricity, further strengthening the outlook for growing demand. Timothy mentioned SMR. That stands for small modular reactors. Right now, there are 434 operating nuclear power reactors worldwide. There are 59 being built, including 23 in China. Those are going to be traditional large-scale facilities. But in markets like the U.S. where private entities

pay the bill and where new construction has stalled, there are companies experimenting with small modular reactors. Those use components that can be built inexpensively in factories. those use components that can be built inexpensively in factories. Okay, so those are some of the factors that work with this uranium price run-up. And there are a couple of others. Kazakhstan, which is a big uranium producer, is running very low on sulfuric acid. So it used to be that when you'd mine uranium,

you would start by crushing rocks. But what companies do these days is they pump acid underground and they leach the stuff directly from ore. And so a shortage of acid means that Kazatomprom is going to increase production only modestly this year, even though uranium prices are sky high. But Cameco this past week said that its earnings last year doubled and that it's going to significantly increase uranium output from two of its key facilities. Its shares lost 7% on earnings day. There's one more factor I want to mention, and that is buying among investors.

There's a company called Yellow Cake that's chiefly in the business of just holding uranium. And back in 2018, it went public, which gave investors a lot of access to that. And then in 2021, Sprott, the investment manager, that bought an investment vehicle called Uranium Participation Corp. Same idea there. Today, that investment goes by the name Sprott Physical Uranium Trust. And it's the largest holding in that uranium miners ETF that I mentioned earlier. When you combine those two companies, last fall, TD Securities estimated that Sprott and Yellow Cake had together acquired 63 million pounds of uranium since Yellow Cake went public. They say that significantly tightened the market.

For context, that number is close to double the combined yearly output of those two facilities where Cameco says it's going to significantly increase production this year. The upshot here is that the long-term demand fundamentals for uranium seem bright, and I like a bullish Mean Girls meme as much as the next guy. But before you jump into one of the stocks or ETFs, you should consider the cautionary example of lithium. Lithium superpower, by the way, is it's lightweight. It would float if not for the fact that it reacts pretty violently with water. And a low weight gives it the lowest charge to weight ratio of any battery metal. Jackson, I didn't pay probably enough attention

in chemistry class in high school, but I can still remember the teacher taking a forceps or something like that and holding up a little speck of lithium and telling everyone to shield their eyes and lighting the thing on fire. And the light that it produced was so intense. It's just the whole room turned white. And I thought during that moment, this seems really significant, but I'm not going to use this to develop a passion for chemistry and one day found an electric car company and name it after one of the greatest minds in electricity. Instead, I'm going to just tuck it away and forget about it for more than 35 years and then mention it on a podcast as an entirely tangential point that I'll observe only to make me lose my own train of thought.

Where was I? Lithium uranium. Lithium uranium. The cautionary example. So the point is that lithium's chemical properties give it a pretty secure spot in the long-term shift from gasoline vehicles to battery-powered vehicles, however long that takes. And it gives it maybe a good position in the rise of utility-scale battery storage as we have more solar power. Sprott launched a lithium miners ETF a year ago at $20, and it recently traded a little over $9. And this past week, J.P. Morgan wrote that the lithium market today looks likely to remain oversupplied through 2028.

It sounds like a lot of lithium. And that's a lot of episodes, so let's leave it there. I want to thank John from Sprott, and thank you all for listening. Jackson Lottalithium Cantrell is our audio producer. You can subscribe to the podcast on Apple Podcasts, Spotify, wherever you listen. What else can they do? You can write a review if you listen on Apple. You can do a lot of things.

You can send us a question if you have one. You can tape it on your phone using the voice memo app. Send it to jack.how. That's H-O-U-G-H at barons.com. See you next week.