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hello everyone lettuce maurice here from the wandering investor.com so today i'm really excited to be discussing with john palumny john how are you good how are you good good so john is from mighty texas he's been working in energy for many years and we'll be discussing his views on two commodities that he thinks are worth looking into namely uranium and oil but before we get started john can you tell us a bit about your background please well i've basically been working in the energy industry in different sectors for over 30 years currently i work in the renewable industry building renewable plants but i've worked in coal plants natural gas nuclear just about everything that's has to do with electricity or power production i've done do so i have a big interest in energy because i believe that it um it underpins every other activity that we do working in energy is one thing and investing in energy is another um so what made you transit from not only just working but also investing in the space because it's it's quite different so um energy investing in energy specifically the focus i have mostly is in oil and gas and coal or fuel sources they're extractive industries so they're cyclical industries and they're typically longer term not very good businesses but there are instances within the sick cycle where they uh because of lack of investment the investment prospects become very lucrative and um it's basically supply and demand dynamics and when supply uh is being overwhelmed by demand price goes up and that provides opportunities in these time windows of 18 months to three years where you can make a tremendous amount of money so um i have is my invest investment thesis looking for i'm a contrarian and i look for contrarian type situations and areas that are bombed out but that have a catalyst for a re-rating or a change and uh right now energy i believe is uh well for the last six months at least that's really been uh my main thesis for uh for uh undervalued and contrarian uh area of investing so i've been following you on twitter and on youtube you have your own channel i'm always very interested in in your content people see me as this guy that invests a lot in real estate in emerging markets and in stock markets in frontier markets which i do but i also invest in more conventional markets if i can put it this way i also have trading accounts in trade in new york and canada and in australia and so energy is something that i personally have been investing quite substantially in over the past year year and a half and you've been coming up with quite quite a lot of content on uranium could you outline your thesis for uranium yeah the quick elevator pitch is uranium represents uh about 11 percent of the world's electricity production 20 percent of the electricity production in the united states its base load capacity obviously the fuel for reactors is uranium and uranium had a massive bull market from about 2003 2004 to 2007 early 2008 where it basically went from about 20 bucks to about a hundred and forty dollars um subsequent to that uh it the price collapsed because it went kind of uh parabolic um you throw in the fukushima nuclear disaster in japan i believe that was in 2011 and it really put a wet blanket on the industry this is a classic example of an extractive industry you know going into disfavor and basically getting blown out i mean at the top of the market in 2007 you had over 500 listed uranium companies um how many were there in 2003 maybe two or three but i remember so basically that's one of the that just as a side note that's one of the indicators when you're near the top when all of the promoters in vancouver and on bay street in toronto start producing uranium companies in mass they have a saying in those places when the ducks quack feed them so that'll be an indicator but anyways that's kind of a side note but back to the uranium thesis basically you're in a situation where the price to extract uranium is for most producers probably 45 50 60 a pound and it's selling for 28 dollars a pound on the spot market i don't know probably a little bit higher in term contracts and that's not a sustainable way to do business selling something for basically half what you produce it for so what you have is you have a contraction in supply over time you work off the previous excess from the previous investment cycle and so what you're basically doing right now is living off you have an industry that's in liquidation you have basically no uranium production in north america currently all the mines are closed you have one of the major producers camaco for example is that has some production with partners in kazakhstan but it's buying material in the spot market to fulfill its some of its obligations you now have uh kaz adam prom who's probably the you know the 800 pound gorilla in the industry it's buying material in the spot market now so you basically go back to the old adage you know low prices cure low prices these this is a typical cyclical commodity business like all the rest you have a price rise that draws in tons of capital people create excess supply and then that creates the dynamic for the eventual price decline and you have an oversupply the price comes down and then you have to work off that so that's what we've that's what we've been experiencing you throw in fukushima and that really put a wet blanket on things but what's interesting is that on the demand side demand for uranium fuel has been increasing why because nuclear reactor construction around the world has actually been increasing there's actually more reactors now operating in the world than there were before fukushima why because it's basically the cleanest safest best uh base load power in the world and um people that have a rational view towards their country's energy policy like in the east in emerging markets china india russia these places they're building out their nuclear fleets and so you have a situation where you have increasing demand that's going to intersect with declining supply uh what's interesting to note is that during the last bull market in like i mentioned back in uh between 2003 and 2007 there wasn't an actual deficit in the supply of uranium what's interesting now is that depending on who you want to talk to or what analyst you want to listen to there's anywhere from a 30 to 50 million pound deficit currently so working down inventories it's very opaque industry it's very difficult to get real-time information most of the deals that are done between utilities and producers are have ndas they don't like to advertise what they're doing so a lot of people focus on the spot market that's a very low volume market so that's really not the right place to look but i look at market action and let the market tell me what it's doing and you've had a tremendous big run in uranium equities and that would indicate to me that the market's forecasting or anticipating rising uranium prices in the future and i think it's one of those things where you can't really know where when it's going to the price is going to start moving higher for uranium but you know it's eventually going to happen i mean rick rule who's a famous investor in canada most people are probably familiar with that invest in junior stocks i mean he makes these interesting quips but this is what he i mean either the price of uranium goes up or the lights go out it's that simple i mean you can't the united states produces virtually none of its own uranium to power its reactors yet it has 20 of its grid powered by powered by nuclear and uh you know the previous administration started a big push to fix that problem because it's a national security issue we have a nuclear navy fleet plus we have this huge electricity baseload fleet that we're relying on places like kazakhstan and russia for for our supply and that's probably not a good uh geopolitical way to think of things and the biden administration has indicated that as part of its esg uh views it has a positive um view towards nuclear energy also so you're seeing that around the world you're seeing more and more influencers bill gates michael bury just came out the guy that was in the big short guy a lot of people money people are now saying that nuclear has to be part of the uh decarbonization or green energy push regardless of how you feel about that or your listeners feel that's kind of where the west is going so you have a lot of tailwinds lining up behind this uh uranium price and it's one of those things where i i feel like um you know what are the downsides if you had another nuclear accident like fukushima but other than that uh the demands there it's growing i mean china just announced last week as part of its new five-year plan they were basically going to increase their their nuclear fleet from about 50 gigawatts to 70 gigawatts in the next four years so they're ramping up you have a lot of tailwinds that's uh i think it's um it's probably in such a small market that when these things move the market cap for the entire you could conceivably theoretically buy the entire entire uranium mining industry for about 10 12 billion dollars that's just ridiculous so at the peak of the last cycle the market cap was about 150 billion for the for the for the industry so you're saying that it's still not too late for people to get into the game absolutely not i mean if you want to have an analogy about i mean think of a baseball game you're probably in the top of the first inning so what happens a lot i think is people see the initial blast off the bottom i mean you're talking about like generational lows you've had this tremendous move or some of the companies have moved 100 200 or more people think oh i missed it so what people should do i think uh is um you know understand the long-term fundamentals and understand that you know in these commodity cycles what can happen i'm not suggesting this could have would happen but i mean you can obviously make a case for 80 a pound over the next couple years uh and there's a chance depending on what happens if hedge funds get involved again start buying material speculative money starts coming in i mean there's no reason why you couldn't get over 100 100 a pound in the next three three to five years so uh that kind of movement in this in the price of the material would i mean you're talking about you're going to see some 10 and 20 baggers in there somewhere so it's very speculative market i would say that you have to be very uh careful in what companies you put your money into but i think there's tremendous it's like doug casey says when a uranium bull market gets going it's like trying to put the contents behind hoover dam through a drinking straw it's just you know there's not a lot of it's not a lot of room to put i mean big money into this market so when money does come in it moves very quickly i a friend of mine introduced me to the to the uranium thesis so i had to look at it and and the more i dug into the thesis and the more i saw how mathematical it is and apart from really a nuclear accident of some sort i can't really see too many risks involved is there anything else that you you see that people should be aware of apart from from an investing point of view the volatility um buying the wrong companies and just for the space as a whole an accident any are there any other negatives um not that i can really see i mean the bottom line is is that if you look at the bp energy annual review i mean the amount of the numbers are so large of where energy demand is going and nuclear really has the only option for some of these countries i mean you can look i encourage people to look up on google images just type in chinese city pollution and you'll just see these pictures of this you know that's not fog you're looking at that's particulate matter in the air from all the emissions from the vehicles and from the coal burning that's going on so these other countries we don't have a choice for choking on their own development in many cases you're well traveled i am also you've been in some of these countries in some places which you see on tv sometimes is very you know oh modern they have skyscraper these theme centers and central business district but then you go into the industrial areas and it's a kind of victorian so i think with the with respect to the downside that's one of the things i try to look at but i don't see any unless you have a massive like chernobyl or something like that or fukushima i don't see much downside some people will ask me what about thorium what about fusion i mean okay well what about interstellar star travel i mean all these things are possible but they're not in the context of the next three to five years that are going to disrupt the industry so there's no substitute that's something in commodity markets people need to be cognizant of for resource markets there's no substitution effect here because in a nuclear reactor uranium is the fuel there is no other substitute and anterior point is very important for people to understand that if they get involved in uranium they need to have an exit strategy because it's not you're not buying a blue chip company you can just buy and then you keep it till retirement you're going to have to exit at some point because uranium is extremely cyclical so it'll hopefully go up a lot but then you need to get out at some point so you need to actively monitor the market and be active out there to understand what's happening so let's talk about i mean you're from texas let's talk about oil you're the you're the expert you're probably born in a bathtub of oil so um the oil industry is very interesting um uh i have this kind of love-hate relationship with oil and gas i mean i really like the industry i worked in the industry for a while um i've invested in actual oil wells much to my regret but uh anyways uh it's another cyclical industry right and basically my thesis the elevator pitch on this is very simple um everybody we were kind of in a recovery mode last year well let's go back let's rewind the clock so the world uses 100 million before cove at 100 million barrels a day of petroleum um that's a lot of petroleum that's 30 to 34 billion barrels of oil a year for the last decade at least we have not found 34 billion barrels to replace the barrels that we have been extracting from the earth now that uh hasn't been a problem because we were living off reserves that had been found previously so i had always been looking at that and saying this reserve life you know um is in decline around the world it's an extractive industry like people have this view that you drive by one of these little oil wells with the pump jack and you know you invest in that and it's putting out 100 barrels of oil forever like in some like you know civilization video game or something it's not like that i mean these things go through a life cycle where they initially produce it's a bell curve and then they go into decline until the resource is extracted and then it's exhausted so that applies to an individual well obviously an oil field and countries and it's another cyclical industry so you had this phenomenon with the shale industry everybody's familiar with where basically the shale boom if you will that was in my view financed by very low interest rates basically sucked all the oxygen and investment of the rest of the industry i mean that was where i mean you went from basically the us went from about five or six million barrels of production and within you know seven or eight years went to 13 million barrels and that really kind of um obscured in my view kind of what was going on in the overall industry and so then you last year for you throw in for example um what happened with kovac you had this huge demand shock where demand was crushed uh because of all the lockdowns and so demand probably dropped i don't know 10 or 15 million barrels a day at the worst but that show i was shocked that it didn't go down more because that shows you even if you drop to 90 million barrels or 85 million barrels a day of use that's how inculcated oil is in everything we do it's not just a transportation fuel it's used in so many other things that we don't have time to get into but everythin around you in your home everything that you're wearing everything is has a hydrocarbon component and so um now that we're coming out of this covid situation we're we're re-uh engaging we're opening up um we haven't done any investment for years in non-opec investment into reserves and production shale has really got bashed in the head and it's not going to come back for a while i mean it's uh with all that investment 300 400 billion dollars that was borrowed i mean virtually none of those companies made any money or had any positive cash flow so that is not going to be uh you know coming back to its previous glory it is my view and so you have this lack of investment with the rest of why not i mean if these companies all go bankrupt isn't new capital gonna come in with uh low interest rates and say let's give it a shot again well i mean how many times are you gonna do this i mean i mean if you're there are there are properties there are companies that make money but i mean they've done this twice now the original uh capital investments the chase for yield with junk bonds i mean all these companies a lot of these companies are going bankrupt now there are companies that are well run like eog and oxy has some good properties but most of the properties that were developed during the boom were the prime tier low hanging fruit with the low cost high production rates now you're into you know secondary less lucrative uh properties so the price goes the cost goes up and yes there will always be if oil goes you know you're seeing it already oil's at uh today brent was hit 70 on the attack and saudi uh so europe you know you're up massively so rig count is starting to climb there are always going to be speculators there's always going to be risk takers and wildcatters but do i think we would go back to the level we were at before not not necessarily now if oil goes to 100 a barrel 120 a barrel who knows what will happen but remember i mean you've turned off all these rigs you've mothballed all this equipment it's sitting in yards uh the crews that we're working on the frat crews on their drilling rigs they've all dispersed they went into other industries so even if you wanted to wrap things up it would take you know it would take some time and so that's why i think this is again this is not this is a burning match also like you talked about uranium stocks this isn't a buy and hold thing either this is a situation where you've had you're catching a cycle where it's been under invested in and yet it demands coming back now and i think it's going to come back massively uh don't because a lot of people will tell you well don't the gulf countries have a lot of spare capacity uh that's true uh they have capacity but they don't have a lot of spare capacity um if you uh that's one of the in my view misnomers and they also talk about iran and all these things so i would suggest that uh the spare capacity is probably less than people anticipate um and you have to remember that uh you're dealing with saudi arabia who is a country basically has several very large oil fields like guajar that's over 50 years old and yes they can turn the taps on for some short period of time but you have to be very careful running these older oil fields that you don't uh push them too hard i mean there's a lot of what they call they pump water into these fields now to keep the pressures up push the oil and if you if you do that too aggressively you can damage the reservoir it's interesting about saudi arabia i remember back in the old peak oil days when matt simmons wrote his book twilight in the desert he's talking about saudi arabia if you look at saudi arabia's published oil reserves they've always been like 250 billion barrels i mean when i was a kid it was 250 billion barrels last year it was 200 i mean it's like does this never go down so what are the what's the real capacity in uh in saudi uh to really expand their production or kuwait or you know and then you get into some of these tertiary countries or other countries second-tier countries like iraq iraq has tremendous amount of reserves and its production has been growing but i mean who wants to invest there i mean i i wouldn't i mean maybe kurdistan then you have iran and you know it has spare capacity it sneaks barrels on but it's not i you you've seen the news lately that uh the body administration and the eu haven't been really super flexed to really lift the sanctions so i would suggest there's a window of opportunity here as this demand comes back as the world opens up over the next year to 18 months that you could get a price spike in oil and i think it's going to surprise people just because i think with all the pent up demand um i was looking at for for example um this is just anecdotes but like if you try to book like flights this summer or late spring early summer like on lufthansa or some of these other places i mean a lot of these airlines are already booked up um a lot of the um people want to go on vacation people want to get out of their house people want to travel to greece cyprus people want to hear want to go to jamaica or hawaii cancun they want to they want to travel they want to move around so um i suggest that there's going to be quite a bit of um uh pent-up demand that comes back and i also think that you know let's not forget that as the rest of the world opens up in emerging markets you know we're going to probably exceed that 100 million uh barrels in demand uh in the next year or so and i think it's gonna surprise to the upside so i think there's a window of opportunity for higher oil prices obviously if prices get high enough enough capital will come in on any commodity market and they'll find the reserves they'll bring them on and you'll see a uh a decrease in price because we're already at 70 dollars a dollar right now isn't capital gonna start coming in now yes but like i said there's kind of a window and then let's throw this into the mix look at all of your with the exception of maybe your national oil companies or the russian oil companies all of the oil companies in the west at least the majors have are disavowing their industry i mean you have bp now into its second time now in the last 20 years of getting into green energy um shell the same way total just had a bloomberg article on last week where bp and total bid on some offshore leases in the north sea i believe and they paid twice the amount that everybody else did so this is are they going to be inclined to um you know defend their i mean it's just not politics it's not politically palatable to be an advocate for oil and gas or invest you have banks divesting uh won't make loans to oil companies because of esg mandates you have pension funds endowments uh family offices disavowing energy selling energy um it's uh the norwegian sovereign wealth fund is selling off its energy and yet the sovereign wealth and was built with oil and gas revenue so uh this is a certain zeitgeist that seems to be fashionable now and uh we'll see if that remains the case when gas is gasoline is four or 450 a gallon i suggest it probably won't be but uh that's a whole nother discussion that's probably not appropriate for this venue but yeah i think there's a window of opportunity for higher oil prices and i don't think that the industry is going to be able to react in you know these are a long lead time projects also you can't just flip a switch uh and do that so i think all those things come together to to make a higher price inevitable over the next 18 months do i think the oil price is ahead of itself right now yes i mean i was forecasting by the end of the year maybe seventy dollars a barrel you've already hit that so we're probably due for a pullback but um i think longer term you could still see 80. if you look at opec i mean a lot of their budgets even russia just break even oil price for most of those budgets are you know for opec the average is 95 dollars saudi's about 80 and russia's about 70 in the 70s so they're not going to be opposed to seeing an oil price at you know 75 80 to barrel and i don't think consuming nations they wouldn't love it but it wouldn't be detrimental to their economy so that might be an equilibrium price that they would be opec would be shooting for okay but i'm not i don't i'm not a macro economist economist on the oil industry i mean i'm just looking at you know uh what i think is a trading opportunity in a cyclical industry so you see uranium as a three to five year play and you see oils and 18 months to your play yeah i'd say so yes okay great all right thank you thank you very much for all this insight john where can people follow you um i'm pretty active on twitter just at john paul me um i have a youtube channel just going to you tube search and put my name in john palmy i make a weekly video about the markets uh what i'm seeing around these themes sometimes i'll throw a bone out there and give a name or two and i also have a newsletter actionable intelligence alert newsletter where i suggest different companies that can take advantage of some of these things that we've been talking about and uh that's that's available for people too but i think uh twitter and youtube are probably the best places i also have a blog but i i'm i'm trying to post more that's actionableintelligencealert.com okay great fantastic all the links to these are below in the description john thank you very much for your time and insights really appreciate it thanks a lot appreciate it cheers