Hello there. I’ve been active in uranium investing for a while and recently made this update on the uranium sector. I normally post on Huzzah, but they told me you all would be interested so I decided to share here as well. I wanted to give a bit of an update on what’s happening with the uranium sector, what the future looks like and if there’s anything left.
The Thesis, is it Still Alive?
As many know uranium miners are down a good amount from their highs in November. UUUU went from a high of $11 to now $5.80. You don’t need a calculator to know that is a big drop. So the question becomes, why did it sell off? Obvious answer would be pump and dump and we are on part 2 of the dump, but that doesn’t add up for one major reason. The overall thesis hasn’t happened yet. Uranium today still costs $65-70 per pound to mine, this is a fact. It still sells for only $44 a pound and peaked at $50 a pound. The price never got to the incentive price to justify mining and as a result you can count on 1 hand the companies currently mining uranium, and of those 3 aren’t even trying to mine it, they just happen to produce some as a byproduct of the materials they actually want. Take a look at the chart below. The chart shows the uranium supply compared to demand from 2018-2040.
See all that red space? That’s missing supply. Look at 2022-2024 and you’ll see the start of a gap that only grows heading all the way to 2040. Also consider, that yellow at the top of 2024 is assuming a full restart of all existing mines, because right now most mines aren’t mining, why would they sell something for $45 that costs them $65 to get. So this chart is not just saying there’s an upcoming supply shortage, it’s saying, even if we assume every mine restarts toady, every planned mine goes into full production with no issue and prospective mines come online we still won’t meet supply needs. And those are some massive assumptions. Many mines don’t come online, I believe the exact number is about 50% of all planned mines don’t actually get into production. But again, even assuming 100% perfection there simply won’t be enough uranium mining to meet world needs. And that simply can’t happen. As of today, nuclear accounts for 20% of global baseload power. Yes 1/5th of the entire global baseload power comes from nuclear energy. So if we follow the chart, the world is heading into a supply shortage for 20% of its baseload energy supply starting now and only ramping up into 2040. Look at what a natural gas shortage in just Europe has done to the gas price. Uranium is setting up for a very similar deficit. Now I’m not going to say uranium = natural gas 1-1 but it’s also not something the world can just run out of. Even the USA gets 15% of its baseload energy from Nuclear. You really think the USA right now can manage losing 15% of their baseload generation? Think of how much effort was needed just to get a simple infrastructure bill passed. The US government is going to replace 15% of its baseload supply in the next few years with windmills and solar farms? Cause we all know it’s not going to be coal or natural gas plants, we are way too committed to going carbon neutral. Simply put the math says prices must go up or people have to accept brown outs and blackouts in the next 5 years. That’s the thesis, it hasn’t changed and it won’t change until uranium sells for at least $65 a pound and all current miners restart. The world can hate nuclear, they can hold their nose and scream wind and solar all they want. Fact remains, we aren’t replacing 20% of the global electrical grid with wind and solar before those major deficits start hitting.
So Why the Price Drop?
So the thesis is still intact but it doesn’t change the reality that the miners are down and the big question becomes why? Well there’s a couple of answers. First one, a lot of them got way a head of themselves. UUUU was not a $11 company sitting back not mining with SPOT price still 15-20% from their restart price. Plain and simple it wasn’t. Yeah companies can run on speculation (Cough TESLA Cough) but uranium got very ahead of itself. This was emphasized by all those CCJ $30 calls for December last year. So was this just retail being greedy? No, it was a bit of everyone. Institutions are well aware of what a uranium bull market looks like, we are talking 100X returns on some of the names by the end of it. Because this is a tiny market. Super tiny. How small, Tesla has almost 10X the market cap of the entire uranium sector. No, not of the biggest company, of the entire combined sector. What this means is when money flows into this sector it rockets, because there’s not many places to go. In total there are 70 companies listed across all stock exchanges that have some mention of uranium. Of those 70 maybe 10-15 actually mine or have mined uranium before. So money comes in, stocks rocket, which we saw in November. UUUU was at $4.58 on August 19th, it got to $11 on November 11th. A little under a 250% move up in 3 months. That’s a big run. So it got a head of itself and now we are back down to much more reasonable levels. But there’s another side to this. Uranium as a market is a very volatile market and that volatility goes both ways. Look below at the UUUU chart from the last uranium bull market.
Total move, 50X in under a year time. But look how many down periods it had, -42%, -40%. -32%, -42%, -51%. Those are big moves down, and I’m sure a bunch of people sold on those drops while screaming “Stupid pump and dump.” This is the thing to understand if you’re playing this market, yes it rockets up, but it also rockets down. If you’re doing this you need to be ready to hold through these big pullbacks, which I believe is exactly what we are going through right now, a pullback. But I’m not alone in my belief. Several big names including Rick Rule, Peter Grandich and Lobo Tiggre have come out recently and said they are back buying up uranium companies because the prices have gone too low in their eyes. Now, feel how you want about these 3, but they didn’t get as rich as they are from buying the dumping end of a pump and dump. So big names with big money who know the space are all saying they’re coming back in expecting a good return.
Other Upcoming Catalysts
So we have established uranium is under the incentive to produce price and is heading into a deficit, but there’s more. You may or may not be familiar with the Sprott Physical Uranium Trust or simply put SPUT. For those unfamiliar, it is a trust setup to purchase pounds of uranium off the SPOT market and hold them. Not for resale, not for future use, just to hold. The trust makes its money through purchasing. When it trades at a 1% premium to its net asset value of uranium or NAV, they issue shares and use the money to purchase Uranium. To date they have bought a bit over 1 billion USD worth of uranium. Remember that deficit chart earlier? It accounts for 0 of this purchasing, because how can it. They have no clue how many pounds SPUT will buy, so it can’t be included. So every bit they buy just adds to that deficit. And they’re not small. They currently have the ability to issue up to 3 billion USD in purchasing, and can increase the amount when needed, in fact they already raised it twice. Once from 300 million to 1 billion and recently to the current 3 billion USD. They have raised all this money and done all this purchasing being listed only on the TSX. That’s right, they’re not on the NYSE at all. But that’s about to change. They are in the process of listing on the NYSE and anticipate inclusion near end of Q3 this year. This will open them up to a lot of money, there are major investors who will not put money into a company unless it is listed on the NYSE. And Sprott is confident in the listing, already having a physical silver and gold trust listed. They’ve even mentioned being in talks with investment firms managing assets in the trillions. And the more money they get, the more uranium they can buy significantly decreasing the timelines for the deficit. They are also taking over management of URNM, the only pure uranium ETF some time end of Q1.
Along with this we have China, who has already committed to building 150 new nuclear reactors in the next 20 years. And those reactors are going to need a lot of uranium to maintain them. Add in Japan who have decided to restart their nuclear fleet, and not just restart it, the new PM flat out said restarting their reactors is a top priority. Even the EU has included nuclear energy within the European Commissions Taxonomy for Sustainable Activities opening up investment opportunities and subsidies for nuclear throughout Europe. The world is slowly accepting nuclear because of the desire to be carbon neutral, and realizing nuclear has a role to play. This isn’t to say everyone likes nuclear, Germany, Austria and others hate it. But remember, this entire thesis was based on one thing, costs $65 to mine, sells for $45. That was it. Everything else is just extra.
So How do I Play This
Shares, shares, shares. Why shares? Because this is a time play. We have an under prices necessary commodity that can’t be replaced going into a ramping deficit. This means eventually, the price is going to go up and thus the miner price with it. But we have no clue when. Could be 2022, could be 2040. I don’t know. What I do know is options give you a nice upside, but they limit the one major strength, time. If I told you the winning mega millions numbers but I don’t know what day they’ll be the right numbers, just some time in the next year, the solution isn’t buy 5,000 tickets with that number tomorrow. It’s buy one every day with those numbers until eventually it hits. It’s the same for this. I can’t say when uranium will get to $65 a pound. But I can safely say it will one day, because it has to. So go shares and maybe 1 year + LEAPs but understand they might not work out. My suggestion, grab some and just forget about it until one day you see Cramer screaming “OMG nuclear buy, buy, buy.” and then sell it all.
TLDR: Thesis is till alive, uranium still costs $65 to produce and only sells for $45, until it hits $65 this play isn’t over. Stocks got ahead of themselves in November but are now much better priced. If you want now isn’t a bad time to add, jut do shares and be prepared to forget you have them for a long time.
This post was written by u/Radthereptile.