Correlated band theory implemented as a combination of density functional theory with exact diagonalization [DFT+U(ED)] of the Anderson impurity term with Coulomb repulsion $U$ in the open 14-orbital $5f$ shell is applied to UTe$_2$. The small gap for $U$=0, evidence of the half-filled $j=frac{5}{2}$ subshell of $5f^3$ uranium, is converted for $U$=3 eV to a flat band semimetal with small heavy-carrier Fermi surfaces that will make properties sensitive to pressure, magnetic field, and off-stoichiometry, as observed experimentally. The predicted Kondo temperature around 100 K matches the experimental values from resistivity. The electric field gradients for the two Te sites are calculated by DFT+U(ED) to differ by a factor of seven, indicating a strong site distinction, while the anisotropy factor $eta=0.18$ is similar for all three sites. The calculated uranium moment $<M^2>^{1/2}$ of 3.5$mu_B$ is roughly consistent with the published experimental Curie-Weiss values of 2.8$mu_B$ and 3.3$mu_B$ (which are field-direction dependent), and the calculated separate spin and orbital moments are remarkably similar to Hunds rule values for an $f^3$ ion. The $U$=3 eV spectral density is compared with angle-integrated and angle-resolved photoemission spectra, with agreement that there is strong $5f$ character at, and for several hundred meV below, the Fermi energy. Our results support the picture that the underlying ground state of UTe$_2$ is that of a half-filled $j=frac{5}{2}$ subshell with two half-filled $m_j=pmfrac{1}{2}$ orbitals forming a narrow gap by hybridization, then driven to a conducting state by configuration mixing (spin-charge fluctuations). UTe$_2$ displays similarities to UPt$_3$ with its $5f$ dominated Fermi surfaces rather than a strongly localized Kondo lattice system.
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