I’m hearing a lot of talk about uranium right now—and even after hearing all this over the past 3 days, I’m not sure about the trade.
I made my first big grubstake on uranium stock in 2006-2008, so I know quite a bit about it. And I know enough for the past decade to stay away from uranium as much as possible. But what is old now is new again in two ways.
A major reason for the massive run of uranium stocks in the mid-2000s was that legendary mining investor Eric Sprout started a fund to buy physical uranium supplies and consolidate the market. It was that long ago, I’m not sure how well he succeeded, but literally dozens of stocks were 5-10 badgers or better. I paid for my first house with that area.
Now Sprott’s old firm is taking over Uranium Holding Company (they own the physical yellow cake-U-TSX) and plan
- turn it into a fund,
- List it in America
- raise several hundred million dollars
- and buy physical uranium again
To me this sounds like the exact same business model that took the market capitalization of the industry from millions to billions.
In the intervening 13 years, uranium bulls have had to deal with some issues. One is that the green movement cannot decide whether uranium is good or bad. The second was the Fukushima incident in Japan in 2011 where a tsunami overwhelmed a nuclear power plant, causing cores to melt and turning public opinion against nuclear for a decade.
From what I read, the demand for uranium is slowly increasing. But even so, prices are so low that Cameco, the world’s No. 1 producer, has taken not one but three of its biggest mines offline at a time because they were unprofitable. That hardly sounds like a bull market, does it?
To me it’s a lot like oil – where a concentrated group of big suppliers have huge spare capacity but show enough restraint to convince the market of their madness. A major difference between the two commodities is that oil prices and oil production were rising just before COVID, indicating a strong market. it was definitely No happening in uranium.
I don’t think we’re at any risk of having less oil in the coming years, and I think the same is true for uranium. There’s a lot of stuff around. It’s a manufactured shortfall – but the market may be willing to pay for it.
Uranium bulls point to the depleting of Cameco’s two Saskatchewan properties by 2026 – just in time for the largest uranium deposit in the world to date – by Arrow Deposit NexGen (NXE-TSX/NYSE) Come online—even in Saskatchewan..
Saskatchewan’s Athabasca Basin is a freak of geological nature like South African platinum, or even South African gold—it’s so highly rated that most geologists—and the public—have a hard time wrapping their heads around it. .
Having said that, arrow deposits are a freak of nature. When it comes to production it will contribute more than 20% of the global production. No other object in the world has any other mine that comes close to it. High grade, huge – by definition it will be a low cost producer.
So basically, I don’t believe that uranium deserves a very high price. Can manufacturers threaten their small customer base (large utility companies) to pay higher prices through manufacturing shortages? Maybe, but I wouldn’t bet my last dollar on this. I see in the U-TSX powerpoint that they are anticipating a big increase in Asian utility purchases starting in 2025—new demand that will drive prices up. Hey, I hope it’s true—I really want everyone to make money.
And speaking of prices, the published spot price is only a small amount of mechanism compared to the huge contracts signed between producers and customers. So while it is valid, it is also not COMEX. (To be fair, the spot market has been increasing its market share over the years.)
Plus—a decade ago wind and solar became big alternative sources of electricity, and it’s now eating lithium and hydrogen uranium- and uranium investors—lunch. Is this going to change? Are politicians going to gain ESG points by exploiting uranium? Are ESG funds going to score ESG points by buying uranium instead of the latest EV or solar technology SPAC? Not sure about it.
But if the bulls are right, these stocks have a long way to go in this liquidity stock market. Most of the shares I bought 6-8 months ago are up 3-8x. Camco (CCO-TSX/CCJ-NYSE) Not even a double yet. NexGen (NXE-NYSE/TSX) A little more than a double. Dennison (DML-TSX/DNN-NYSE) There is a triple. All these stocks are inter-listed in the US, giving them a lot of liquidity.
So it’s deja-vu again. In the mid-2000s, uranium prices were at their longest low. Then came a new business model for raising prices. Now that guy’s well-known company (Eric is no longer part of Sprot) is doing the same thing again after 13 years, in the exact same market conditions. Lightning might strike twice – it’s already because these stocks are trending now and the NAV premium for U-TSX is at the upper end of its range.
Uranium wouldn’t be a big business for me. but i have a small amount U-TSX for physical performance, and some Ura-NYSE-ETF that owns the shares of all uranium producers and developers (such as NexGen).
I am not sold on this trade. But I’m tall. Here is a list of the top 10 holdings for the URA-NYSE ETF.
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