Let the Uranium Bull Market Begin

“The most exciting returns are to be had from an asset class where those who know it best, love it least, because they have been hurt the most.” – Done Cox

Major supply destruction

Sector analysts in the uranium space have been saying that the world’s largest uranium mine, McArthur River, would likely reopen after a 10-month temporary shutdown that started in February and their overly conservative supply/demand forecast models have reflected this. Meanwhile, the owner, Cameco, had repeatedly said they would not bring it back unless uranium prices were meaningfully higher as it would make no sense economically.

Last night a decision was made to put the mine on hold indefinitely until nuclear utilities are willing to sign long-term contracts at a price that reflect their true costs plus a reasonable return – probably north of 45 USD/lb – the spot price is now at 24 USD/lb and the latest long-term contract price was around 29 USD/lb. This shutdown equates to supply destruction of 12% of the global production that nuclear power plant utilities thought would come back online as they have relied on paid analysts and consultants filling their ears with the sweet words that it would.

A domino effect is likely

I believe this marks the beginning of a new bull market for a few reasons.

  1. The nuclear power plant utilities will have to wake up from their dream state to a new reality in which cheap uranium below the cost of production is no longer available in quantities they had been hoping for.
  2. Cameco will have to buy significant amounts of uranium in the spot market to fulfill their contracts to customers. This will inevitably push prices higher.
  3. Kazatomprom plans to IPO in a few months time. It would make sense for them to delay any action that will result in higher uranium prices (such as further production curtailments) until after Cameco has made the decision to put McArthur River on hold indefinitely. This game of chicken has now been won and they can now pull whatever levers they please without shooting themselves in the foot.

There are many other reasons that I have already covered in previous posts but the above three are linked directly to the news release from last night.

The final de-risking of the case for uranium

I cannot imagine the risk/reward will get any better than it is at this moment. My opinion is that the McArthur River decision is the straw that will break the camel’s back and if one prefers to wait for further de-risking it will almost certainly come at the cost of more expensive stock prices, thus reducing the risk/reward. In my opinion the way to handle risk is in how one sizes a position, not wait for all the stars to align because all opportunities will be gone when the skies are completely clear and everybody can see it. One wants to be positioned before the price of uranium moves because now it is pretty much inevitable that it will.

My current uranium positions

For the record and for transparancy, my bets are primarily with US producer Energy Fuels and London-listed Yellow Cake. The latter being the safer “in case I am wrong on the time horizon”-type of bet – like Uranium Participation, that I have highlighted previously in a video, but YCA trades at a larger discount. I also have smaller positions in Paladin Energy and GoviEx as well as a tiny position in the optionality play Virginia Resources.

Disclaimer: Note that this may change at any time and while I intend for all of these positions to be longer term I may enter and exit positions without notification of this on my blog. I do not accept responsibility for any loss that may occur as a result of any recommendation I make and urge readers to perform their own research and due diligence. My posts are intended to be treated as a starting point only.

6 thoughts on “Let the Uranium Bull Market Begin

  1. Thanks for beginning writing about the uranium business, it woke my attention. I joined the party due to the american petition 232-angle (invested in Energy Fuels, UR and a tiny position in UEC), but the other catalysts for the uranium price seem to come to life quickly now. I have been looking at Yellow Cake and Paladin as well (+Bannerman Ressorces) but have difficulties getting access to them (I use Nordnet). Any hints? Thanks again for you going public with your research.

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  2. Hi Hammerinvest,

    I have long admired your work.

    I ended up investing in a few companies, among them UUUU, URG and UEC, since
    there is no information available what might be the resolution for petition 232 and
    if positive, in what form and schedule the decision will be implemented. E.g. gradually
    increasing the amount of U.S. uranium that should be used in the U.S. utilities.

    Additionally, I invested in Goviex and Paladin. Now here’s what’s interesting about Goviex.
    Madaouela in Niger requires 359 M$ to build the mine. Mutanga in Zambia requires 121 M$ as well.

    Goviex, i.e. their CEO has indicated that roughly 2/3 of the required total investment
    500 M$ (I rounded this upwards) will be financed using credit. 1/3 will be
    financed using equity.

    Let’s assume that 1/3 is 167 M$ and let’s assume Goviex is able to get 0,20$ per share.
    This means addition of 830 000 000 shares. Counting the current shares, options and warrants, roughly 577 M, the total number of shares will be then around 1 400 M.

    Now, this changes a bit the landscape of Goviex’s profit / share and P/E calculations.

    According to my rough calculations this makes Paladin “cheaper” than Goviex.

    I assume the uranium price will increase at least to 60 $/lbs (probably / hopefully over 70 or even more). Paladin is able to produce faster (restart maybe in 14 – 18 months) while Goviex will open Madaouela in 2021 IF EVERYTHING succeeds.

    Any comments? Do you have preferences between those two?

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    1. I think you are exactly right, Jokke.

      I prefer proven mines over not-yet-built ones. So much can go wrong in the process of constructing a mine. On top of that new Paladin shareholders benefit from the fact that much of the debt financing of those mines have been wiped out by the recent restructuring. I agree completely with your view that Paladin is the better investment at current prices.

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