So, you have made it through paragraph after paragraph of me talking about the uranium bull market, reasons why we need nuclear power, what will drive this market and what companies I feel like are best positioned to take advantage of it (if you haven't, I would advice reading them and the comments below each post to get an answer to any question you might have). Perhaps you may have decided to invest, so now what? General consensus is that when investing, it is best to invest for the long term. This could mean anywhere from 10, 20, 30 or the rest of your life in years, depending on what your goal is. This is not the case with uranium however. Yes I do bet on nuclear power being one of the most important solutions to climate change and yes I believe we will expand on it in a big way in the coming decade with next generation power plants and small modular reactors, but that is not how you want to invest in this market. The uranium market is cyclical and it should be treated as such, so how do we recognize the patterns and know when to get in or out?
See, a cycle seems to be triggered when nuclear power utilities have to come into the market to sign new long term contracts with the suppliers of uranium, which is called a contracting cycle. Most contracts run for around 10 years, some longer and some shorter, but all long term. This causes a big increase in demand for uranium, because a lot of utilities are out of contract in 2021 and 2022 after they signed contracts during the last contracting cycle roughly 10 years ago. These utilities also cannot afford to be picky anymore, it has become a sellers’ market. The supply deficit has caused it to become a ‘take what you can get, no matter the price’ situation and with fuel only consisting of around 5% of the total cost to run a nuclear power plant, these utilities will contract at whatever price it takes to secure supply for the long term. The combination of this contracting cycle, a severe impact on production in 2020 and 2021 due to COVID-19, the lack of companies currently producing, the great reduction of mobile supply globally, the Q1 2021 closing of 2 major uranium mines, no expansion at Olympic Dam and the increasing demand of new reactors coming online will all come together to make a quite ridiculously convincing bull case in my view. Even the most skeptical people in the sector, those that try their hardest to dampen expectations, are astounded at how all these different catalysts have come together within the same time frame to form the case for this uranium bull market.
Now, when do you actually sell your investments once we are fully into this bull market? It takes months upon months to negotiate and sign new long term contracts and it is not like all utilities will come to the market at the same time. With the biggest amount being out of contract somewhere in the next 2 years, they will start negotiating around that timeframe or a bit earlier than that. This bull market will come back down like the cyclical industry that it is when demand is mostly satisfied with these long term contracts and when new and old mines are brought back and the supply deficit shrinks, at least that is the general consensus of what will happen. Knowing this, I would think this bull market lasts somewhere into 2025, but the peak might be a bit earlier when everyone is scrambling for supply and the price per pound rises like it did in the previous bull market. When/if this price reaches roughly triple digits, is when you start selling out of your position. Do not do it all at once, as no one can predict the market, but start trimming your positions around that time. Selling into strength is your best bet here. Between 2004 and 2007, the price of uranium had to go up to around 50 dollars to incentivize new mining. It way overshot into triple digit territory due to a variety of reasons (mine floods, hedge fund buying, etc.) and came back down quickly after that. It could overshoot massively this time as well, but nobody knows if or when that might happen, so selling parts of your position around this time to lock in some gains is advisable. Remember, no one ever went broke taking a profit. Best of luck to all of you.
All statistics on long term contracting, increased demand, price action and more can be found in this presentation by Mike Alkin and Sachem Cove. It will visualize everything I have talked about in this and previous posts:
https://m.box.com/shared_item/https%3A%2F%2Fapp.box.com%2Fs%2Fogo9v4k2uvi2ko5yi4cdl4wcdwko3ana
Submitted December 07, 2020 at 08:53AM by 3STmotivation https://ift.tt/33QGKN0
