(Ep.33) The Acquirers Podcast: Joseph Boskovich – Owner Managers, Content, Uranium, Spectrum, Proxies & 13Ds

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In this episode of The Acquirer’s Podcast Tobias chats with Joseph Boskovich. Joseph is the Co-Founder and Partner at Old West Investment Management. Old West manages long only and long/short investment strategies based upon the companies that they uncover through a simple yet sound investment process.  The firm is focused on  uncovering value opportunities, and concentrated in its best ideas. During the interview Joseph provided some great insights into:

  • Investors Should Focus On Companies That Are Owner Managed – Here’s Why
  • Howard Jonas – One Of The Best Investors You’ve Never Heard Of
  • Fremium – Free Games Generate Billions Of Dollars In Revenue
  • Gold – The Way To Short Monetary Recklessness
  • Uranium Could Be The Most Undervalued Commodity In The World Right Now

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Full Transcript

Tobias Carlisle: Hi, I’m Tobias Carlisle. This is the Acquirers Podcast. My special guest today is Joseph Boskovich. He is a co-founder and partner at Old West Investment Management. They’ve got some very interesting positions on their owner-managers. We’re going to talk to Joe right after this. (singing).

Announcer: Tobias Carlisle is the founder and principal of Acquirers Funds. For regulatory reasons, he will not discuss any of the Acquirers funds on this podcast. All the opinions expressed by podcast participants are solely their own and do not reflect the opinions of Acquirers Funds or affiliates. For more information, visit acquirersfunds.com.

Tobias Carlisle: Hey, Joe, how are you doing?

Joe Boskovich: Hey, Toby. Thanks for having me.

Tobias Carlisle: My absolute pleasure. Tell me a little bit about Old West. How did you get started? What’s your focus?

Joe Boskovich: Yeah, so kind of the genesis of our process originated in the late 1970s, so I work with my dad. I’m partners with my dad. And my dad, in his early 30s, he was invited to sit on the board of a small, regional Southern California bank called Santa Clarita National Bank. The first several quarters on that board, he noticed the chairman of the bank ferociously buying stock and decided that he’d buy alongside of him. So he did and put a significant amount of money into that bank at a young age. Fast forward several years, Santa Clarita National Bank sold to First Pacific Bank, which then sold to Bank of America, and he made a lot of money at an early age. And I think the lesson learned for him at that point was no matter how much you think you know about a company, no matter how sound your analysis is, you probably don’t know as much as the people running that business.

Joe Boskovich: It’s funny, in my career, I’ve seen that time and time again with other managers, investors that I know. One of my colleagues or a manager of another fund had a position in the company, thought he knew everything about that company, joined the board, and talked about in one of his letters how once he joined the board he was so shocked to find out how little he actually knew about that company. So we do our own analysis, put together our own thesis, but at the end of the day, realize that maybe the people running those companies know more than we do.

Joe Boskovich: So when you look at our process, it’s fairly simple, but we focus on owner-managers, and we don’t want to overpay for those businesses. So as a first principle, we want to make sure that all of our investments are run by management teams who have more to gain or lose from their ownership than they do from their compensation. So I tell people typically the first document that we would look at is the proxy statement, and within the first 30 minutes of reading through a proxy, 90% of the companies just kind of get tossed into the trash can, and we move on.

Joe Boskovich: The 10% that pass that proxy test, then we do a deep dive and really try to understand those businesses better. At the end of the day, a name could come into our focus in a number of ways, but oftentimes, we source ideas first and foremost from SEC Form 4 filings, 13D filings, 13F filings. And simply, if we see a CEO buy five million dollars’ worth of stock in his own company, it doesn’t mean we’re going to blindly follow him into that investment. But maybe there’s something there, and it’s up to us to figure out what that owner-manager sees in his own business.

Tobias Carlisle: So you’re looking for… You want an owner-manager who has… Well, you think the company is undervalued as well, and then additionally you’re looking for some insider buying on top of that, and that can come through the SEC Form 4 or the 13Ds or Fs?

Joe Boskovich: Yeah. It doesn’t have to be insider buying. That would be how we might screen for a name, but there’s a lot of companies that we own where maybe there’s not insider buying, but the CEO already owns 20% of the company, or there’s an outside investor that we have a high regard for that has a significant stake. So this could be Warren Buffett, John Malone, Bill Stiritz. But if you see someone like that that already has a big stake in the company and that hasn’t changed, maybe there’s something there. So oftentimes, we’ll try to reverse engineer that idea.

Tobias Carlisle: So let’s go through your portfolio a little bit. From the filings that I had a look at, your biggest holding at the moment is a port in Tesla. That’s an interesting one because we’ve just been talking about an owner-manager, and Musk is certainly a big owner-manager. So what’s the thesis there?

Joe Boskovich: Yeah. Right, Elon Musk is an owner-manager. He owns a lot of stock in the company. Keep in mind, when you look at the 13F filings, it shows the notional exposure. So on the short side or in terms of protecting the portfolio, we look for situations where we could outlay very little capital, but the pay-off is big. So we do own deep-out-of-the-money puts, and we roll those over every couple of months. We don’t actually currently have that position on right now, but the idea is that we outlay very little capital. I think it’s just… It’s maybe 10 or 20 basis points of capital, and if we are right, that could pay off significantly.

Tobias Carlisle: I’ve got you. Right. So the next biggest position is RFL, Rafael. Talk to me a little bit about that position.

Joe Boskovich: Yeah. It’s grown into a big position. I actually just was listening to your podcast with Ian Cassel a couple of weeks ago, and both of you make some great points about trimming your winners too early. So at some point, I think we would trim back that position, but don’t want to do it prematurely. I think there’s a lot of potential there. But our investment in Rafael, it’s really more of an investment in someone that we think is a great owner-manager. His name is Howard Jonas. And it’s funny, if you look at the investment landscape… Imagine if you built a portfolio where you identified great owner-managers and capital allocators and you kind of invested alongside them, so think of someone that invested with John Malone 30 years ago and kept all of his spins and really watched him closely, you’ve done very well. Imagine how you invested alongside of Warren Buffett for the last 50, 60 years. You’ve done very well.

Tobias Carlisle: Bill Stiritz.

Joe Boskovich: Yeah, Bill Stiritz, exactly, so any of those people profiled in The Outsiders, right? Howard Jonas is less known. I think he has a phenomenal track record, and I think that people are going to know more and more about him as time goes on. So Howard started a company called IDT Corporation in 1990. IDT, they are in the communications and payment-services business. They’ve done a great job managing that business, but they’ve also talked about how the international minutes business has been in decline from free VoIP providers like Skype, which we’re using right now, or WhatsApp. So what they’ve done at IDT is they’ve effectively managed IDT’s cost structure, and they’ve maximized that cash flow, and they’ve taken the cash from the legacy business, and they’ve effectively bought a basket of growth initiatives within IDT.

Joe Boskovich: There are still several growth initiatives still within IDT, but a lot of those they’ve spun off. So if you look at Howard’s track record… And like I said, he started IDT in 1990, but if we just start in January, 2010, since January of 2010, Howard has spun off five different businesses from IDT, and he sold the sixth, after which he paid a special dividend. But he spun off IDW Media, which… We could talk about all of these. I could talk about each one for an hour if you’d like, but he spun off IDW Media in 2011. I think the next spin was Straight Path Communications, which a lot of people will… That name will resonate with a lot of people because that was one of his big exits.

Tobias Carlisle: Well, why don’t you tell us the Straight Path Communications story?

Joe Boskovich: Yeah. So one thing that I’ve found with Howard is Howard, he’s a great visionary in terms of identifying secular growth stories. What’s going to be the big thing tomorrow? So the first company I mentioned, IDW Media, he bought that company in the 2000s. It’s the fourth largest comic-book company in the world, which is misleading because 99% of comic-book sales are Marvel and DC, so it’s a very small base. But he bought that company, and then he took some of the cashflow that the comic-book company was generating and invested it in the television production business, and this was in 2009. Anyways, they have three shows that will be premiering in Netflix in the next six months.

Joe Boskovich: But once again, when I talk about a secular growth trend, I think he’s identified streaming, and valuable content is going to be in high demand. And I actually listened to your bit recently on Netflix as a short position. We’re short Netflix, too. I think the world of streaming, the companies like Netflix are going to get hurt. The companies that are going to do very well are the owners of valuable content like an IDW Media.

Joe Boskovich: So anyways, he spun off IDW Media. The second spin was Straight Path Communications. Once again, I think he identified a secular growth trend, so in 2001, Howard basically bought a hodgepodge of spectrum licenses off One Star Communications out of bankruptcy, and this was in 2001. He paid $50 million. He bought that under the IDT umbrella, and then he, 12 years later, spun off that hodgepodge of spectrum licenses into a company called Straight Path Communications. Well, last year, there was a bidding war between AT&T and Verizon, and Verizon ultimately won and paid $3.1 billion for Straight Path Communications, and Howard Jonas owned 20% of the company, so that was obviously a big exit. He had a big billion-dollar exit earlier on in his career.

Joe Boskovich: So post Straight Path, he spun off Zedge. We are actually the largest shareholder of Zedge. We own 15% of the company. That’s an exciting asset. And then most recently, he spun off Rafael Holdings. So Rafael Holdings, that’s a holding company. He spun it off from IDT with cash, about $50 million of cash, real estate, which has a book value of $50 million, and that’s IDT’s headquarters, and then two stakes in bio-pharma assets. So the most exciting would be a 56% interest in a company called Rafael Pharmaceutical. And Rafael Pharmaceutical, they’re basically developing therapies for difficult-to-treat cancers based on the AMD platform, which is altered cell metabolism. So you have chemotherapy. You have immunotherapy. Well, the AMD platform, the medicine is designed to target the mitochondria of just the cancer cells and leave the healthy cells alone, so you don’t have the same side effects that you do with chemotherapy.

Joe Boskovich: But anyways, what’s interesting, when it was first spun, it had a hundred-million-dollar market cap, which was basically equal the book value at the time, and you have this option stake in these pharmaceutical companies, which have had tremendous results in Phase 1 trials. They now have two drugs in Phase 3 trials. The one they’re most excited about is a Phase 3 trial for pancreatic cancer. In phase 1 trials, they treated 15 patients, and three of those patients are in complete remission, and this is a cancer where their survival rate is less than 1%. So it’s a little bit of a, I guess, a speculation on the bio-pharma side, but keep in mind that this was spun, and we’re basically getting real estate and cash, and that was equal to the market cap at the time.

Tobias Carlisle: Yeah. So you get free options in those two, basically.

Joe Boskovich: Yeah. And then since then, the stocks run, so that’s not necessarily still the case, but this is… Howard Jonas is the chairman of the company. He is largely funding the company through trials. When he originally got involved… As you know, with early-stage tech and biotech, you might have a great technology, but you fall short of the finish line, and you run out of money. So Howard was kind of that capital injection, and in return has this 56% majority stake in the company through IDT. And he’s all in, and he’s spending a great deal of his time on this company. It’s somewhat of a bet on Howard Jonas, but several things have happened over the last six months that I also think kind of de-risk the investment. They just signed a big deal with Ono Pharmaceutical in Japan, where they are going to market that drug in Japan, and they’re going to pay Rafael a low double-digit royalty on sales. And they just announced trials in Israel and parts of Europe, so I think as they do that, it also de-risks the investment from an FDA decision in the United States.

Tobias Carlisle: Got it. So let’s just go back to IDW. What are the comic-book characters that it has, and what are the shows that are coming up?

Joe Boskovich: Yeah. This has kind of been a long-term investment for us, and there were some stumbling blocks in the road, but as I mentioned, Howard bought IDW Publishing in the early 2000s. In 2009, it was paying a small dividend. In 2009, he canceled that dividend and invested the cash and taking its IP and turning it into television shows. They had two shows pretty early on. They had a show called Wynonna Earp, which was based on one of their comic-book characters, and that was on Syfy. And then they had Dirk Gently on BBC America. Wynonna Earp is going on season four. Dirk Gently was canceled after season two. And there’s kind of been this lull where there’s been nothing lately.

Joe Boskovich: They have had three shows picked up for Netflix. So V-Wars and October Faction will both premiere on Netflix before the end of the year, so in calendar year 2019. And then their best-selling IP ever is Locke & Key, which was written by Joe Hill, Steven King’s son. And that was picked up by Netflix and will premiere in early 2020. So what’s interesting is once again… And one thing that I didn’t mention earlier, so we look for companies run by owner-managers. We want to buy into that asset at what we think is a reasonable price. But then third, I think, if you could identify a company where there’s a breakout business, I think that’s very interesting because, as we know, if you’re a value investor, you could buy things that are cheap, but usually things are cheap for a reason, and that’s because no one wants to own them.

Tobias Carlisle: Right.

Joe Boskovich: So if you could identify some sort of catalyst, and that could be a hard catalyst or a soft catalyst. But if you could find a business where there’s this breakout business where revenue is going to grow significantly, maybe that could be the catalyst. In IDW Media’s case, right now, if you looked at the income statement, all of the revenue is generated by the publishing business. Well, so entertainment was generating revenue before Dirk Gently got canceled. Then there was kind of an interruption with Wynonna Earp, but the company has already said that V-Wars and October Faction, those two shows will contribute $27 million in new revenue to the entertainment division in the fourth quarter or in the end of the year here. And then Locke & Key is done on a producer fee, so it’ll be $2.5 million licensing fee from Netflix in revenue, but that’ll go directly to the bottom line. And then Wynonna Earp is about $8 million in revenue.

Joe Boskovich: So here you have a company that if you look last quarter or the last calendar year at the income statement, the entertainment division is doing zero, and the entertainment division is going to be doing $35 to $40 million in the next 12 months. So once again, this is a business where everybody’s focused on the publishing asset, but there’s this entertainment asset that’s going to have significant income state contribution in the future.

Tobias Carlisle: How material is that to IDW?

Joe Boskovich: IDW, it’ll double its revenue.

Tobias Carlisle: Right. Wow!

Joe Boskovich: Yeah, so that’s interesting. And once again, I think that you need to underwrite every investment separately, but IDW Media, Zedge, Rafael, IDT, I don’t know that we would be invested in any of these businesses if it weren’t for Howard Jonas. And we’ve taken a lot of time in studying him, reading about him, meeting him, spending time with the management teams of the different companies to feel very comfortable. But once again… I mentioned all these spinoffs. So had you invested in the IDT Corporation in January of 2010 through today, if you were invested in IDT plus all the spin-cos, your compounded return is about 50% per year…

Tobias Carlisle: Wow!

Joe Boskovich: … versus 10% for the S&P 500. So I think the results speak for themselves, and if you look at what he’s done and his successes, it would suggest that a closer look at his actions is warranted.

Tobias Carlisle: Well, who is he? I’ve never heard of the name before. Where does he come from?

Joe Boskovich: Yeah. Well, it’s funny, and most people haven’t. Most people haven’t. But like I said, he didn’t just emerge recently. He started IDT in 1990, and he’s built a great business. Really, what he did is… Think of the international callback. He basically pioneered that business. And then he’s constantly… The company has morphed to keep up with the times. And then you think back calling cards, remember when you would use calling cards, IDT kind of pioneered that.

Tobias Carlisle: Like the prepaid card?

Joe Boskovich: Yeah, yeah. They pioneered that business, and he’s continually… In the early 2000s, he talked about how he felt the telecom business had become too commoditized, so he bought a small children’s programming studio and basically built the company called IDW Entertainment. He built IDW Entertainment over a series of years. And in 2005, he sold IDW Entertainment to John Malone of Liberty Media for $500 million, and that was kind of his first.. one of his first big successes. And then he took that cash from selling that business to John Malone and invested it in a lot of these other growth initiatives.

Tobias Carlisle: Right. So I think the one spin that we didn’t discuss was Zedge.

Joe Boskovich: Yeah. Yeah, so Zedge is really inter… Well, obviously Rafael, I feel like the risk is muted and the potential return is infinite, and Zedge is similar. Zedge is the smallest company. It has a $15 million market cap right now, and he bought Zedge in the… So when he sold IDW Entertainment to John Malone, he used the cash from that sale, and he bought two assets. He bought IDW Publishing, and he bought Zedge, and both are kind of in the content space. And Zedge was founded as a wallpaper and ringtone app, which sounds kind of silly. And we thought it sounded kind of silly, too, so we received our shares from the spin, but we never really bought more into it. And there was an acquisition two years ago that really changed the way I view Zedge. So this was in the fourth quarter of 2017. Zedge bought a company called Freeform Development, and they retained its founder, a gentleman by the name of Tim Quirk. And I was kind of fascinated by that, right? What’s Freeform Development? Who is Tim Quirk?

Joe Boskovich: So I kind of dug in a little bit more, and I actually found a great podcast with Tim Quirk, and that really changed the way I thought about Zedge, and what I realized… So wallpapers and ringtones, as silly as that may seem, Zedge has 35 million monthly active users, which is a huge number, right? I mean, find an independent app that’s not already owned by Google or Facebook, that has that sort of user base. So really [crosstalk 00:23:42].

Tobias Carlisle: What’s the product? What’s the product look like? Because I do remember ringtones and wallpapers being a huge business, and I saw somebody… I saw it on Twitter. Somebody tweeted out a stat saying something like… And I’m going to get the timing wrong, but it could be 10 or 15 years ago, that was like a $5 billion-a-year business, that because… Just because of the way that phones have developed, it’s no longer such… It’s no longer as big as that. So what’s the consumer getting when they buy these things?

Joe Boskovich: Well, so they still have 35 million monthly active users. So people are still interested in that core product. But then I think you need to take monthly active users to daily active users to hourly active users. So what makes Instagram or Facebook or Snapchat, what makes them so popular? It’s not that… They have a big monthly active user base, but these users, they’re using it daily. They’re using it hourly. They’re using it by the minute. So how do you increase user engagement? So when they bought Freeform Development, I kind of sat there once I… and I’ll talk about Freeform in a second. But it’s not about the wallpapers and ringtones. It’s about the 35 million monthly active users. And how do you monetize that user base?

Joe Boskovich: So at the time, Zedge, they were doing about $12 million a year in revenue, and it was all advertising, from the big advertising exchanges, right? So you’d download a wallpaper, and then you have to watch a 30-second commercial. That was 100% of their revenue. So how do we monetize beyond that?

Joe Boskovich: So I watched this podcast with Tim Quirk, who founded Freeform Entertainment, and he has a really interesting background. He was a musician growing up, and then he was one of the early employees at MySpace and did very well there. Then he was hired by Google, and he was hired by Google to help… He was one of the first employees hired at Google to kind of build the Android store. When he was hired by Android, his title was… Sorry about that. When he was hired by Android, his title was… He was the head of all digital content programming. And keep in mind, his background is music.

Joe Boskovich: So what he was baffled by at Android was here we live in this world where, in the digital age, movies, books, music have all just gotten absolutely pummeled, right? If you look at music sales, they’re down in the dump. If you look at book sales, down in the dump. Movie sales, down in the dump because this new digital age, piracy, or whatever, it’s changed everything. But the one content category that had been killing it was mobile gaming. And really what mobile gaming had figured out was this whole freemium model.

Joe Boskovich: So in his interview, the company he uses is he talks about King’s, which makes the mobile game Candy Crush. And he talks about how, with Candy Crush, originally it was a paid app, and nobody was downloading the app. So then they make it a free app, and they have all these in-app purchases. And by having these in-app purchases, all of a sudden, all these people are downloading the game. So there’s 300 million monthly active users that Candy Crush had built up to. They had 300 million monthly active users, and most people get the game for free, never pay, but the people that do pay are the hard-core fans. There’s only a 3% conversion rate, but out of that 3% conversion rate, Candy Crush was making a billion dollars a year.

Tobias Carlisle: Wow!

Joe Boskovich: So Freefrom basically took the lessons that he had learned at Android and applied it to music. So he was doing this with artists now. So he was taking artists. And artists, instead of giving their content away for free on iTunes, now there’s all these metrics where you could unlock music and take different conversion metrics. So the fan’s not paying for the music, but you’ll watch a commercial or you take some other action that generates more money for the artist than they would make if the album was free on iTunes in the first place.

Joe Boskovich: So that kind of really resonated for me. So when Zedge bought Freeform, then they were… Take what Freeform was doing with music and extend that to all content, so artists. So right now, if you go on Zedge’s app, they launched Zedge premium, so they basically now have… It’s a marketplace, and they have about a thousand different content creators on that marketplace right now, from artists to musicians, and it’s basically providing a platform where artists can monetize their creation. They can monetize their content that otherwise they weren’t getting paid for. So you take a dedicated artist who has a day job, and now they have their content up on Zedge, and they’re making $100 a month, let’s say. And although they can’t retire, that’s significant income to help them do what they love.

Tobias Carlisle: Got it. This is an odd segue, but this is the way that the portfolio looks, so I have to kind of ask this question.

Joe Boskovich: Oh, man.

Tobias Carlisle: The next biggest holding after RFL is gold.

Joe Boskovich: Gold, yeah. Well, so I think gold… You mentioned the other day in the interview I watched when you were talking about Netflix that you think this is a great environment to short. And it’s funny, let me take you through kind of the genesis of our company. We started in 2008. Our first five years, our performance was great. I think we were probably the top decile. We were raising money. Because of our performance, we grew from $15 million in assets to $200 million in assets. And the last five years has been exhausting. You kind of feel like you’re running in place. You’ve seen all the comparisons. Basically, if you haven’t owned the thing stocks and some of the momentum stocks, it’s been very difficult to outperform the market.

Joe Boskovich: I think where my philosophy, my process has evolved a little bit is I used to always think bottom up instead of top down, and part of the problem with that is take the reverse of our buy process. Likewise, if we see companies with massive insider selling and extreme overvaluations, maybe those are candidates for the short book. Well, in this world we’ve lived in, where you have central bank manipulation and money printing and zero interest rates, basically that’s made it impossible to short. So I think really what gold is is it’s an investment in monetary… a monetary-

Tobias Carlisle: You’re short monetary recklessness.

Joe Boskovich: Yeah. We’re short monetary recklessness, but once again, I think you entered the bottom-up part of our process, and we don’t own the commodity. We own miners. And then you look for the miners that are run by the best management team. So I think our biggest gold position right now is Barrick Gold, and you look at Mark Bristow, who was acquired from Randgold, and I think they’re the best in the business. So once again, try to align ourselves with the right management teams. But yeah, we do have a good gold weighting, and we looked pretty silly…

Tobias Carlisle: Well, it’s working now.

Joe Boskovich: … for a while, but it’s working now. Yeah.

Tobias Carlisle: It should be looking good now. Then the next holding in there, and this is a longer discussion, but you’ve got some exposure to uranium as well.

Joe Boskovich: Yeah. Yeah, so-

Tobias Carlisle: There’s a very long thesis there, so just give us the short one, and then we’ll move on to the uranium opportunity.

Joe Boskovich: Yeah. So it’s an incredible opportunity. We actually don’t feel that we’ve ever seen an opportunity like this, so we actually launched a fund dedicated just to the uranium mining space about a year ago. But just like any commodity, it’s a supply-demand imbalance. And what created the imbalance, if you go back to 2011, and you remember the Fukushima earthquake and tidal wave off the coast of Japan. That tidal wave damaged one of the nuclear reactors, and as a precaution, Japan shut down their entire nuclear reactor fleet. And at the time, I want to say Japan accounted for about 20% of world demand.

Joe Boskovich: So imagine that. You have 20% of world demand going away overnight. As a result, the price of uranium fell from $70 a pound to $18 a pound, and it’s basically been a depression ever since. And when Japan took the nuclear fleet off the market, you had this… We were awash in supply, and it’s taken a long time to work through that supply. A lot of people have been involved in this space since then, and they’ve been wrong. I don’t think they’re wrong; they’ve just been really early. But being early and wrong is the same thing in this business. So there’s been a number of things that have happened in the last 12 or 18 months where we feel that the situation is going to reverse in the near term.

Tobias Carlisle: So what causes the cycle to shift?

Joe Boskovich: Yeah. Like I said, it’s supply and demand. So right now, worldwide demand for uranium is about 200 million pounds. And primary supply, I think, is about 130 million pounds. So the difference would be the spot market or… So what you’ve had is you’ve had all this over-supply. You’ve had all this stockpiled uranium, and in the last 18 months… This is interesting. So go back to 2011. This was a $150 billion industry, and there were many, many, many players in this industry. Well, today, the entire industry is about $7 billion. So a $7 billion market cap, and 80% of that is to producers. It’s Kazakhstan, Kazatomprom in Kazakhstan, and Cameco, which is a Canadian-based mining company. And like I said, they represent 80% of the supply.

Joe Boskovich: So in the last 18 months, Cameco, they put their largest mine, McArthur Lake, on care maintenance, so that cut their supply by about 20%. And Kazakhstan did the same. They cut their supply 20%. They just committed to cutting it 20% through next year. So you’ve had 20% of supply come off the market in the last 18 months, and that’s basically… Imagine… That’s the equivalent of OPEC saying, “Hey, we’re going to zero.” Imagine what would happen to the price of oil had that happened.

Joe Boskovich: So you’ve had all this supply has come off the market. And Cameco, they’ve said, “Rather than produce uranium… Or rather than produce new supply at prices where we’re not making money, we’re just going to buy up the spot market to deliver ore into our long-term contracts.” So just last quarter, they announced that they were going to buy a million pounds off the spot market. Well, they bought about 200,000 pounds, and the spot moved like to $28. So there’s two prices to look at in the uranium market. You have spot, which is very illiquid, and then you have the long-term contracting prices. And long-term contracting prices, that would be the price where deals are struck between the utilities and miners. And in the end, spot will trend along long-term contracting. The problem is you’ve had no long-term contracting for years.

Joe Boskovich: So long-term contracting, you’re looking at five, six, seven-year contracts. And like I said, there’s been no new contracting, and part of the reason is because of section 232, which was just decided by President Trump. But basically, 18 months ago, the two US producers, Energy Fuels and Ur-Energy, they petitioned section 232 with the Department of Commerce to basically look into the role that uranium imports play in our country’s national security.

Joe Boskovich: We are the largest consumer of uranium here in the United States. 98% of our uranium is imported, half of which is imported from the sphere of Russia. So President Trump… So the US producers, basically what they asked for is they asked for a quota where the utilities would have to buy 25% of their uranium needs from US producers. And President Trump basically came forward, and he said, “Well, we’re not going to do that, but we’re going to put together a 90-day working group to really help the entire nuclear fuel cycle of the United States.” I think basically what President Trump did is he came forward, and he said, “Hey, look, we’re going to help you guys, just not at the expense of the utilities.” So in the next… I mean, that was 90 days. Time’s passed, so pretty soon, I think, you’re going to see some sort of measure taken to, like I said, assist the entire nuclear fuel cycle in the United States.

Tobias Carlisle: But it’s not going to be a subsidy or a tariff?

Joe Boskovich: It could be. It could be.

Tobias Carlisle: Oh, it could be something like that. Okay, I see.

Joe Boskovich: No, it could be. And I actually wouldn’t be surprised to see some sort of action taken where the US producers are given a fair playing field as it relates to all the international, because it’s not a huge difference, but the price that utilities would have to pay a US producer are a little higher than what they would have to pay a producer in another country where maybe the fuel standards aren’t as high.

Joe Boskovich: So anyways, as I said, and we’ve seen this when Cameco went into the spot market to go buy uranium, the spot price moved up pretty quickly. So essentially, there’s not enough stockpiled. There’s not enough on the spot market. We are going to need new supply to fill that deficit, and the cost of production’s about 40, 50 bucks a pound. So you’re not going to see any new long-term contracts entered into between the utilities and the miners unless that price is going to be materially higher. And as those contracts are struck, you’re going to see spot rise, and I think it’s going to happen pretty dramatically.

Joe Boskovich: And a lot of these companies… I mean, keep in mind, if you’re a development company and you have this development, but it doesn’t make any sense to develop your project unless uranium prices are at 50 bucks, you have a lot of these companies that are trading at options. They’re trading as options, yet the MPV of that project is 5X, 6X, 7X. So Energy Fuels, which is the largest US producer, I think it’s a $2 stock right now. Well, at the last peak of the uranium market, it was a $250 stock.

Tobias Carlisle: Right. So how do you think about playing that opportunity? Are you looking at producers, or are you looking at the nuclear energy… I’m forgetting the name of that… The developers, the explorers? How do you play it?

Joe Boskovich: Right. So you have the producers, and like I said… Keep in mind what I said. 80% of production is two companies. So you have Cameco. Energy Fuels is produced in the United States. So there aren’t many. And then you have developers. And then further down the tail, you have the explorers. So in our kind of main funds or the funds that we’ve been managing for the last 10 years, most of the exposure is in the bigger producing names. But in our new uranium fund, we basically have taken a basket approach to owning the producers, the developers, the explorers. And maybe some companies won’t do well, but others will, and we think that basket approach is probably the smartest way to play the space overall.

Tobias Carlisle: That sounds very interesting. So we’re coming up on the time here, Joe, so if folks want to get in contact with you, what’s the best way of going about doing that?

Joe Boskovich: Sure. Go to our website, Old West Investment Management. And our contact info is there. If you go to the press section of our website, we have all of our quarterly letters and manager interviews posted, and I’ve always said that, at the end of the day, we are concentrated investors. We’re all about the names that we own. So if you read all of our quarterly letters, you’ve basically read 75% of our portfolio.

Tobias Carlisle: Got it. Love it.

Joe Boskovich: Yeah.

Tobias Carlisle: Joseph Boskovich, Old West Investment Management, thank you very much.

Joe Boskovich: Great. Thanks a lot, Toby.

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