To the Uranus [Part 2]
Disclosure: I am a generalist, recently graduated retail investor who seriously entered markets in 2021. ALL of my research is borrowed from others (see references), I claim no credit for it, and merely intend to consolidate it for others to learn more about a sector.
Contents (Part 2):
Dismal supply
Summary and when/how much we will see Uranium prices move
When/how much will we see Uranium equities move
The bear case
How to play the sector: divergences between individual stocks
Closing thoughts
References
Dismal supply
To reiterate, it is difficult for a generalist to know the supply side in depth. The aim of this section is to provide a sanity check on expert numbers and to ascertain that we are directionally correct with ample margin of safety.
The main point in this section is that foreseeable Uranium supply is insufficient to meet world demand in the coming decade, and will lead to sustained, higher prices.
The following supply sources are unlikely to increase:
Secondary supply from military warheads
Secondary supply from recycled Uranium
Secondary supply from re-enrichment of depleted Uranium
Meanwhile, the follow supply sources are likely to decrease:
Secondary supply from underfeeding
Secondary supply from inventories
Primary supply from mine production
Secondary supply from military warheads
Until 2013, downblending of military grade uranium provided ~15% of the world reactor requirements. This was from a 1993 Russian HEU deal where Russia down blended 500 tonnes of Highly Enriched Uranium (HEU), roughly 2.5x annual world Uranium demand equivalent, and sold it over 20 years.
With today’s geopolitics and much lower nuclear stockpiles, this won’t be a source of Uranium for the foreseeable future. If anything, military uses are likely to become a net consumer of Uranium: it’s estimated that ~4M lbs of domestically produced Uranium in China goes to their military (1:52).
Secondary supply from recycled Uranium
There’s no indication this is going to increase in the foreseeable future. The paradigm has not even shifted to seeing used fuel as a resource rather than waste.
Secondary supply from re-enrichment of depleted Uranium
Russian enrichment had treated 10-15,000 tonnes per year of western depleted Uranium, producing a few thousand tonnes per year of natural uranium equivalent. That program has now finished. A new US one is expected to start when surplus capacity is available. However, as discussed previously under overfeeding, western enrichment is tight for the foreseeable future. The end of the Russian program and without replacement means this should decline as secondary supply.
Secondary supply from underfeeding
As discussed previously under overfeeding, tightness in western enrichment could remove 14.4M lbs of 20M lbs of secondary supply.
Secondary supply from inventories
The important thing to note about secondary supply from inventories is that unlike other sources, it doesn’t create any U3O8, but only changes ownership. That said, the fears have been that Uranium contracting is delayed by large inventory overhangs, and selling of inventories would dampen the spot price. We’ll address inventories in different regions and argue that these fears are unfounded.
As discussed previously, US and European utility inventories are low to medium, meaning that utilities likely need to contract soon.
The main inventories mentioned as supply overhangs are Japanese and Chinese.
Japan inventories are well in excess of historical levels. This is because post Fukushima, Japan continued to take deliveries of contracted despite most material being offline for most of the decade. The inventory is approximately ~100M lbs, which has been sold into the market in the bear market.
Will this inventory continue to be sold? My previous post points to ~11.4M lbs of annual demand with 15 out of 23 reactors restarted, 15M lbs if all 23 were restarted. Japan aims to draw 20-22% of energy form nuclear by 2030, with 2 reactors under construction, 1 planned and 8 proposed. If those are all built, that’s 20M lbs of annual demand. 100M lbs is ~6.6x annual demand of operable fleet, and ~5x including prospective reactors required to hit 2030 goals. 5-7 years inventory, while high, is not absurdly so. One must consider that Japan is uniquely vulnerable, importing 90% of their energy needs, which would justify large stockpiles. Furthermore, most Japanese inventory was contracted at $80-120 (pre inflation adjustment), meaning that even at much higher prices than today, they would only break even. It is also irrational to sell when an impending shortage means you have to buy back higher later in decade.
In terms of contracting, short term contracting may be muted, but in a few years, they are likely to become buyers again (27:40). Perhaps telling is the behaviour of Japanese utilities, where Marubeni met Kazatomprom in May 2022 to discuss joint ventures in Uranium mining, signalling Japan is acting to secure long term supply.
Chinese inventories are enormous, with estimates ranging from ~286M lbs in 2018 to ~400M lbs in 2021. However, these are unlikely to be sold as they are strategic in nature, and they are modest relative to China’s buildout. China is short on energy besides coal, with little oil reserves (and they import oil through geopolitically dangerous territory), and only 4% of the world’s Uranium reserves. With tensions with top Uranium producers like Australia and Canada, they likely see Uranium stockpiles as a matter of national security. According to Mike Alkin (perhaps the best fund manager in the space), they are likely looking to build decades of stockpiles. And relative to their needs, the current stockpile is modest. Assuming 400M lbs inventory, and referring to part one’s section on Chinese demand, if China hits their 2035 target, they will need 161.5M lbs initial load with 89.5M lbs of annual demand by then. If they miss it by a third, it will be 107.5M and 67.5M. Note from now to 2035, they will still be consuming Uranium, with 29.4M lbs current annual demand and 50M lbs by 2030. Assume a linear growth in annual demand and summing the arithmetic progression, that’s 320M lbs cumulatively. Initial load till 2030 would be roughly 50M lbs, which leaves 30M lbs ex 2030s coverage. For a country beset by enemies, few O&G and Uranium resources, tensions with major producers and the most ambitious nuclear program in the world, that’s not remotely a “margin of safety”. And the enormity of post 2030 fuel needs coupled with an impending industry shortage would probably see aggressive Chinese contracting, sooner rather than later. Consistent with this view, in Nov 2021 China announced a 60M lb warehouse along the Kazakh border to store Uranium, and just signed 2 term contracts with Kazatomprom.
Primary supply from mine production
Primary supply from mine production will be insufficient to meet demand for this decade and beyond. It will be limited by supplier discipline as well as sheer lack of lbs in the ground.
The Uranium industry is resolved to limit production in order to extract maximum value from their existing mines. Kazatomprom (largest producer) has a subsoil agreement to produce a certain quantity of Uranium, which they can over or under produce by 20% max. Kazatomprom was producing 20% below agreement in 2021, and stated that the policy “will continue in 2022 and 2023” “despite a significant improvement in the market situation and the continued increase in spot prices”. Cameco (second largest producer) had operated 75% below capacity in 2021, and plans to operate 40% below capacity by 2024. This would “remain our production plan until we see further improvements in the uranium market”. There are others, which one can refer to this list if interested. This is remarkable supply discipline across the industry, which means primary mine supply will be as low as necessary to create higher prices.
Furthermore, due to depletion and lack of new mines, primary mine supply will not meet demand in the coming decade. As an amateur, it’s impossible for me to go through all mines, producing and prospective, so I have to defer to experts here.
On depletion, Tradetech (one of the better fuel consultants) sees existing mine depletion accelerate greatly post 2030 (Fig 11). Mike Alkin’s Sachem Cove also shows severe depletion post 2029 (Fig 12). Note that this was pre-Covid, and does not account for demand from US extensions, EU expansion, Japanese restarts, China’s announcement of 150 reactors, or the Russia Ukraine war.
On new mine supply, there is not enough, even at much higher prices. Pre-Covid (before supplier discipline and major inflation), Sachem Cove stated that at $50 per lb, 40% rector needs from 2020-2030 will be unmet as that is below marginal cost of production (Fig 13). $55 per lb originally may have reduced (not eliminated) the deficit, but that has shifted to $75 per lb (16:18). In fact, there may not be enough lbs at any price, period. Exploration died during the bear market and has not revived (Fig 14). No new major mines are due. And yet, according to Kazatomprom’s Chief Commercial Officer, the market may require 2 more Kazatomproms by 2030. If you could flip all current and prospective mines on instantly, there may not be enough supply. Importantly, you can’t either, with average 10-15 years needed to build a mine. Arrow, which is the largest known undeveloped deposit, could produce 28.8M lbs per year. But it is likely to face permitting delays in Canada, where Uranium permits have taken up to 30 years (5:00) before. Indigenous interests will need to be managed. Primary supply looks wholly inadequate, and the most telling admission is by utility China General Nuclear (Fig 15), who is desperate for Uranium and may not be inclined to be alarmist.
Summary and when/how much will we see Uranium prices move
Summarizing the demand side:
Even assuming a diminished Chinese build out and Japanese restarts and no growth in nuclear fleets elsewhere, primary reactor demand will increase by 32M lbs of annual demand by 2030, with initial load of ~50M lbs.
Conservatively increasing inventories by 1x annual reactor demand via 10 year contract will add 16.2M lbs of annual demand through 2032
Financial demand from speculators acquired 45.5M lbs from July 2021 to May 2022.
Even writing off financial demand and initial load, 48/162 = ~30% increase in annual demand by 2030. As a sanity check, the multiple projections cited are not outlandish.
Summarizing the supply side:
Military warheads, recycling and re-enrichment are non increasing/decreasing sources.
Flipping underfeeding to overfeeding could remove ~14.4M lbs of supply.
Western inventories are drawing low. Japanese and Chinese inventories are unlikely to be for sale and modest for their needs. Contracting will need to start soon.
We don’t have enough lbs for more than a decade and everyone knows this. Producers are resolved to extract every bit of value from the remaining lbs.
What does this mean? We will analyze the impact on the spot and term market.
To recap, the spot market is for lbs to be delivered within 1 year. What supplies the spot market? Firstly, excess primary supply not part of a long term contract, such as excess production over contract needs, or uranium by-products from other mines. The second is inventories from utilities, producers and miners, such as underfeeding, or Japanese inventory sales. What is spot demand? It could be anything, such as investment, miners purchasing lbs (Cameco bought cheap lbs off spot to meet their contracts), overfeeding, inventory buffering, etc.
If most Uranium is via long term contracting, why does the spot market matter? Firstly, because long term contracts often reference spot pricing. Cameco’s 2018 delivery contracts were 40% fixed price, 60% market price. Kazatomprom contracts are spot referenced too. Rise in spot = rise in pricing of a lot of long term contracts. Secondly, the tightening of the spot market encourages long term contracting. A curious phenomenon (9:00) over the past few years has been the maintenance of US utility inventories despite purchases below replacement. This was due to the carry trade, where utilities agree to purchase lbs for a fixed price from traders in the future, and traders purchase lbs in spot today and hold (aka “carry”) them for utilities till delivery. The result is midterm market demand (aka contract demand) is “brought forward” into spot demand. As spot supply dries up, this trade will disappear and even reverse, as traders sell lbs into spot and secure midterm lbs to meet their obligations, adding to contract demand.
Right now, the spot market is tightening. Uranium bottomed at $18 in 2017. Supply reduction, carry trades, miner purchases brought the market back to $31 in May 2021. Financial demand, with SPUT, drove prices to $50 as of June 2022. The reversal of underfeeding will increase spot demand further, and will occur soon. Utilities purchase from the back of the fuel cycle (UF6 and enriched Uranium) to the front, as it takes fewer steps to fabricate into fuel rods. Long term SWU (enrichment) has gone from 2018 lows of ~$40 to $130 (Fig 10), spot conversion has gone from 2017 lows of ~$4 to $30, spot UF6 (conversion product) has gone from 2017 lows of $50 to $153. As the back of the fuel cycle tightens, U3O8 (mined product) will follow soon.
As the carry trade unwinds and inventories draw low, contracting will start soon. How soon? Assuming average 36 months western inventory, some utilities will have below average inventory at 30 months. Since a fuel cycle is 18-24 months, those utilities HAVE to contract in 6-12 months or less (7:30), or risk a fuel outage. As mentioned, Chinese are already active in contracting. Japan is likely to contract in a few years latest (27:50). And we are seeing the term market move already: Cameco contracted 30M lbs in 2021, but 40M lbs in just January 2022 alone.
As spot tightens and contracting begins, how high can prices go? The answer is: an overshoot of marginal cost needed to satisfy all reactor demand. As discussed, $75 per lb will be needed to satisfy the market in the next few years. But price won’t stop there. In a seller’s market, producers will demand high prices. Fears of insufficient supply will drive procyclical demand from utilities. Supply response will take time. Note that in the 2007 bubble, with Kazakhstan and major mines like Cigar lake coming online, there was no impending supply shortage. Yet, most contracts were signed in the $80-120 range (pre inflation adjustment). Now there are not enough lbs to go around. Pressure from financial speculators is much greater, and will consume already limited supplies. I would expect at least $80 per lb in the coming years, and it will almost certainly go much higher, but how high is anyone’s guess.
When/how much will we see Uranium equities move
First thing to note is that they have already moved. URNM on June 3 2022 is 68.88, up from 16.73 Covid lows. But they have significant upside left.
The question of when and how much is a difficult one. First, let’s address when. While we can expect contracting in the next year, equities moved 2 years in advance. If not the Uranium market, what can tell us when equities move? I don’t think anything can. The extreme volatility in Uranium often comes without reason (7 30-70% pullbacks in the last cycle), and even if there are reasons, they are not foreseeable. 2 years ago, no one could have foreseen SPUT, the war, Japanese restarts, etc. I think trying to “time” this market is a fool’s errand. That said, due to the volatility, it is generally a good idea to add on dips, because dips almost always happen.
Secondly, let’s address how much. The question is complicated by Uranium being both a speculative and value play. As GME shows, you can’t put a price target on manias. And the bubble of 2007, with Paladin going from 0.01 to 9.74 and back to 0.1, was a mania. And there’s not even a guarantee of a mania this time. If we head into a tighter monetary regime, speculation could play a much smaller role (note that 2004-2007 bubble happened during a bull market). But then again, if a rotation to commodities occurs, Uranium would receive huge fund flows. And as a value play, we have to ask what is a “fair” valuation, and will we hit/miss/exceed it?
What I will say is Uranium equities will move higher in the next few years or generate cashflow at sufficiently low valuations to create shareholder value through buybacks. I will analyse the prospective cash flows from a company to demonstrate that the sector still has significantly undervalued equities.
Let’s talk about Global Atomic. It has a market cap of 545.1M as of June 3 2022. It owns 90% of the Dasa Uranium project and 49% ownership of a Turkish Zinc project. Zinc mine generates $30M per year in profit and is debt free. Dasa is permitted. Phase 1 of Dasa project, which is only 20% of the total deposit, will take 3 years to build. The all in sustaining cost of Dasa is $22 per lb. According to a feasibility study in Q4 2021, it can produce 45.4M lbs. Assuming $70 per lb contracting price, this is 2.2B in cumulative profit from Phase 1 alone. That’s 4x the market cap, and excludes zinc profits and the other 80% of the deposit.
Uranium equities have run a lot (Global atomic has 10xed from Covid lows), but they have significant upside left.
The bear case
What’s the bear case? I will list out some and address them (feel free to message me or comment if you wish others to be addressed).
What if a nuclear accident happens?
Yes, everything will go down first. All bets are off. It’s a black swan.
But even then, it may not completely invalidate the thesis. This is because nuclear is too important as a segment of baseload now. Note that different countries reacted differently to Fukushima. US shut down ~10% of nuclear fleet (and that is at least partially due to cheap competing energy). Germany completely reversed. France kept their fleet. Ukraine, China, etc. grew right through the crisis. Arguably, the understanding of Fukushima’s true casualty number (very low), the necessity of energy security and decarbonization, as well as energy crisis and expensive competing fuel sources makes a radical reversal much more difficult this time.
Also, new builds make it nearly impossible to have Chernobyl scale event.
It may lead to severe volatility and an extension of thesis timeline, but the sector is more robust to an accident this time.
If utilities aren’t panicking and contracting, how can your numbers be right?
If the situation is so bad, why aren’t utilities reacting?
I think that some utilities, such as China, have been proactive over the bear market. As for western utilities, their inventories are not at dangerous levels yet. But they should have started contracting long ago. So why not? Complacency. In 01, 02, 03, inventories ran low but utilities were convinced supply was ample (26:50), but those same utilities contracted at all time highs in a panic years later.
If nuclear energy depends so strongly on government and public sentiment, can’t it reverse just as easily?
Both previous bear markets were caused by major reversals in nuclear policy. I think this is less likely this time due to a broader public recognition of the safety and necessity of nuclear. Nuclear is extremely safe. Modern reactor designs and protocols are far superior to those at Chernobyl. Fukushima resulted in 1 death (disputed) from radiation. Big names like Gates, Musk and Schwarzenegger are speaking out about its safety. And it is recognised as necessary for the green transition (won’t belabour the point, check the press releases on nuclear around the world).
And that sentiment is improving as we face an energy crisis due to fossil fuel shortages and wind and solar unreliability. Physics tells us nuclear is a superior energy source, especially among the carbon free sources. If you want to understand why nuclear is a superior energy source, start with this post by Lyn Alden). You can’t fight physics, as events like US extensions and Japanese restarts show us, and Germans are paying a high cost for their energy stupidity.
Notably, most growth will come from China, which I doubt will allow even a nuclear accident to derail their ambitions.
All growth is Chinese growth. Can the Chinese build that many reactors?
Firstly, supply and demand were mismatched before China increased their growth numbers to 150 reactors. The demand figures I calculated for a sanity check discounted a 1/3 of Chinese growth and assumed no growth in the rest of the world. So there is margin of safety.
That said, factors in favor of China’s success are standardized builds, cheaper costs, lower build times, a robust supply chain, and political will. China is only abundant in coal. Solar and wind are not reliable. Oil and gas are hard to stockpile, and makes its way to China through geopolitically dangerous routes from foreign fields. Energy security is critical for China, and Uranium is perfect due to its ease of storage and because Kazakhstan is shares a border with China. If I were China, I would focus hard on a nuclear program, and their actions so far show they are serious.
What if financial demand dries up?
Yes, we could see reduced inflows to physical funds due to market weakness. This would certainly weaken spot price. But note that financial demand has already consumed 25% of global reactor requirements, and has tightened up spot significantly. Any additional demand is a bonus (SPUT wasn’t even around when Mike Alkin projected deficits into 2030). But I don’t think it’s done: as spot continues to tighten, especially with overfeeding, more reflexivity and financial bloodlust is likely.
What if financial speculators sells lbs?
Let’s look at SPUT, which is by far the biggest source of financial demand. Conceivably, if SPUT traded at a significant discount to net asset value, they could sell lbs to return cash to shareholders. However, to quote financial times: “asked if Sprott would seek to sell any of its uranium hoard, Ciampaglia (SPUT CEO) said that this was impossible due to the structure of the trust”. SPUT is intended to operate in perpetuity and has no mechanism to sell lbs, period. Sprott’s other physical funds have traded at a significant discount to NAV for long periods of time before. That said, rules change, but SPUT is intended to profit through fees, incentivising the maximisation of AUM. Any selling, if ever, is likely far off and at much higher prices, somewhat higher than $100 per lb.
An important thing to note is the stabilising effect of SPUT on financial speculation. In the last bull market, funds had to buy and sell Uranium directly to profit, rather than through a trust, meaning lbs always found a way back to market. Now, they can sell SPUT shares instead, hence lbs will sit with SPUT at a discount to NAV rather than re enter the market, preventing supply shocks.
However, I do think that there is a risk that SPUT gets suspended (more likely) or forced to sell lbs into the market (more drastic and less likely) due to political pressure. Politicians have been vocal at “price gougers” in oil, and I am certain as Uranium supply shortage comes into full gear, they will criticise SPUT. There will be FUD, and SPUT will become a victim of its own success. But not yet.
What if overfeeding never occurs?
You have to believe that western utilities will not pay a significant premium for western enrichers when 1) inventories are low and 2) Russian tensions are high. Even if the war ends, will utilities go back to thinking conflict and sanctions with Russia are unlikely? And for identical reasons, Chinese enrichers are unattractive. Remember that security of supply takes precedence over price in nuclear.
Couldn’t we use all that nuclear waste and depleted Uranium?
There is enough energy in nuclear waste to power the US for 100 years. The thesis is moot if we can tap it. While the tech exists, the problem is cost. It’s expensive to reuse used fuel and depleted Uranium, and will always be (because of far lower concentrations and other issues). This means prices of mined Uranium go much higher before those substitutes become economical.
What if there are more inventories than we thought?
I’ve already used generous inventory numbers for China and Japan.
Looking at western utilities, the figures are from Mike Alkin and other whom I trust. But even if they are wrong, understand that this delays but does not invalidate the thesis. Supplier discipline likely means lbs sold will still be profitable, although volume may be muted for another year. And the longer we wait before triggering a supply response, the more severe the eventual deficit.
Could the mine supply numbers depletion numbers be wrong?
It’s corroborated by almost all sources. But beyond that, as a generalist, you just have to take their word for it. Considering no announcements for large new mines can be found, it seems to be true.
Can nuclear utilities absorb the higher costs?
This is a fair point. Nuclear operators had been requesting subsidies to keep running due to competition from cheap oil and gas. But nuclear is better positioned to absorb higher costs as all energy sources are spiking in price, and because a premium for green energy is likely. Oil, Natural Gas and Coal are spiking to all time highs and supply side issues will sustain prices at high levels. Recall from the previous post that fossil fuel energy is much more sensitive to fuel cost than nuclear (Fig 2). Furthermore, nuclear is carbon free and not vilified, and will avoid punitive taxes that other fossil fuels will likely face. Relative to solar and wind, nuclear costs are simply superior, as a comparison between Germany and France demonstrates. And while different baseload energy sources are perfectly substitutable, there is no substitute for energy itself, so when all energy sources are mooning, they can all make windfall profits.
Thorium and Fusion
A thorium or fusion reactor offers significant benefits over a Uranium reactor. Countries like China are testing thorium reactors. That said, the technology is too nascent to play a role this cycle. Thorium and especially fusion are both still experimental. To build thorium reactors at scale, a thorium mining and fuel cycle needs to be built, which has its own challenges. We are basing the thesis on supply demand mismatch until 2035, and all the reactors coming online till then will be based on economical, tested designs which are invariably fission based Uranium reactors. Also, even with new kinds of reactors, the existing fleet is large and long lived, and will consume a lot of Uranium.
What if Uranium equities don’t perform like the last cycle?
They won’t, and they don’t have to. Note that Paladin 914xed from a 1m market cap. We are past that stage (Encore energy is up more than 100x from 2016 lows). And while the fundamentals are stronger now than 2017, a recession could dampen valuations. That said, looking at stocks like Global Atomic, there is ample margin of safety to achieve great upside even with low multiples. Low multiples are also not a bad thing if you have large cashflows to buy back.
How to play the sector: divergences between individual stocks
What’s the fastest horse in the race? This may be the most difficult question to answer. Truth is, I don’t know, and I don’t think anyone does either. Why did a stock move the most? The best answer is perhaps “because the market likes it”.
That said, I’ll go over some considerations in stock picking before sharing what I might do (which is far from optimal)
Jurisdiction: Where is your mine located? US and Canada are usually high cost and slower to permit, and yet seen as “safer” by investors and command premiums. Kazakhstan has a lot of Uranium, but has geopolitical risk, especially after the Russian Ukraine war (Kazakhstan has close ties with Russia). Africa is cheap and permits fast, but people still think its dangerous (although it really depends on which African country, doesn’t it?). I don’t really know much about Australia, but my impression is its like North America, but slightly cheaper and more supportive.
My view is that geographical diversification is important if you don’t know what you are doing. I am partial to African jurisdictions with a history of Uranium mining, simply because the western premium seems irrational to me, since those jurisdictions are significantly inferior in cost and permitting time.Explorers, developers, producers: Explorers find assets. Developers make them into mines. Producers are already producing. Companies can do one or multiple of the above. Explorers tend to have huge dispersion of returns, are filled with scams, and burn cash, but find a great deposit and you will be rich. Developers are riskier than producers because of issues getting a mine running, and the risk of cash burn due to problems. Producers are safer, but usually priced as such by the market.
You probably don’t want to YOLO on one explorer, but it can give you torque, especially relative to producers. Developers are something in between. I lean away from producers simply because I’m less risk averse and want more upside.Juniors vs majors: Large uranium companies are established and will receive institutional fund flows. Juniors are riskier but will tend to have more room to run from small bases.
Quality of an asset: Whether explorer, developer or producer, consider the cost and volume of production. Cost should be comprehensive and include things like capital cost, infrastructure, etc.
Management: There are great CEOs (e.g. Global Atomic, Encore CEO diligently moving into production) and not so great ones (e.g. Amir Adnani aka Amir Armani who are lifestyle CEOs that over promote). Management does matter, and I would say buy good management unless the premium is exorbitant.
Laggard vs leaders: Some stocks lag others (e.g. Anfield Energy) and sometimes this is justified based on fundamentals. Some hope that these stocks will “catch up” in an upswing, while others believe “leaders will always lead”. My thought is usually there is a reason, although if you believe that will get resolved, by all means buy laggards. And in the later stages of a bull market, there’s a chance it is the “shitcos” that will run (analogy: Bitcoin vs Dogecoin).
Physical vs equities: Equities probably have more leverage to higher Uranium prices, but SPUT is a direct way to play rising Uranium prices and as long as it tracks the Uranium price, it’s relatively risk free.
Miscellaneous investments: $SMR is a SPAC acquiring Nuscale, which will build advanced reactors. Centrus is a way to play the fuel cycle.
What do I suggest? My own portfolio was built incrementally and haphazardly, and is NOT a model. But if I HAD to give advice knowing what I know now, I would say smaller investors should probably look at juniors (sub 1B market cap) as the opportunities are better. They should diversify across jurisdictions and between explorers/developers at least. Good management should be highly valued, though not unreasonably so. Equities with a clear path to production or existing good assets will have better risk reward than those with stranded assets or are looking for their first lb. There will be new companies listing and calling themselves “Uranium xxx” but will most likely be scams (In the last bull market, number of “Uranium companies” tripled). Leverage and options are probably a bad idea, considering the volatility of the sector.
The best way to find stocks to research is probably to search this subreddit for posts that go like “What stocks to own”. The best way to do stock research is probably to go to twitter, and search the ticker symbol (e.g. $GLO) and get views from both sides, then check primary sources (e.g. financial reports).
Closing thoughts
Obviously I’m all bulled up, as the risk reward (Uranium is still below marginal cost of production!) skews upwards. The equities have been badly hit recently by broader market weakness, and yet the fundamentals have gotten stronger. But with the Uranium market as dysfunctional as it is, I think it’s a waiting game before something breaks. A fitting analogy (copied from Justin Huhn) is that of a ship tied to a pier with a loose rope. As the ship moves out to sea, nothing happens for a while, but when the rope becomes taut, the entire pier gets pulled into the sea. Slowly, then all at once.
IMPORTANT: A key risk is the investor’s greed. Several of the tailwinds for an upcycle are headwinds for a downcycle (e.g. financial greed turns to fear, reverse carry trade turns back to carry trade). The downside in commodities is brutal, fast and FEW people keep their gains. My suggestion is DO NOT play the last leg of the bull market, sacrifice some upside to keep your gains. And have an exit strategy accounting for the fundamentals (it will evolve over time, but always ground it in fact). For me, the most important parts of the thesis is the supply demand mismatch. Once I think the market is close to pricing in most of the shortage, I will sell.
Ultimately, I’m just some guy on the internet, and I could be wrong of course, but I can take the L. Never invest above your risk tolerance and what you can lose.
Disclosure:
I am personally long Encore Energy, Global Atomic, International Consolidated Uranium, Isoenergy, Anfield Resources, Forsys Metals, Elevate Uranium, Alligator Energy, Aura Energy, Denison Mines and Spring Valley Acquisition Corp at 179.5K cost basis.
References:
There are more, but I’m running out of space, so I’ll just list these and you can branch out yourself if interested:
Sachem Cove: Maybe the best hedge fund in the space, have done thousands of hours of work on supply demand.
Segra Capital: Another great fund.
@quakes99. Amazing news aggregator, but a stock pumper.
Uranium Insider: Gives daily commentary. Skews bullish, great at fundamentals, not so great at market timing. Runs a newsletter.
Rick Rule: Conservative, repetitive, sometimes bipolar, but an old fox.
@JRPelchat: Nuclear engineer with over 2 decades of experience in utilities. @deepvalueco, Deep Value Co
@808sandU3O8: Ex fuel buyer (and now fuel seller).