I think discussions around uranium investments are sorely missing from this forum. There are a lot of people on the r/UraniumSqueeze subreddit who knows this field much better than I do but this is my attempt at a short dd.
You probably have heard of the "uraniumsqueeze" hypothesis, maybe you laughed about it and thought, "yeah right, uranium is just for the boomers that don't understand my precious safemoon/BTC/GME/TSLA/AMZN/APPL investments".
The bull thesis on uranium equities is simple: extreme supply and demand dislocations. Uranium production has not kept up with consumption for years. How is this possible and why did it happen?
Current low price. After the last uranium bubble in 2007, when uranium reached $140/lb prices, uranium prices have been depressed and hovering around $27-30/lb. There are several reasons for this: 1, Fukushima and the associated reduced popularity of nuclear power; 2, oversupply of cheap uranium from nuclear weapons stockpiles during years of disarmament, this is not happening anymore and the stockpiles from this period are running low. The current price of uranium is lower than the cost of producing in most mines. The mines that can produce at or below the current price can not supply nearly enough to satisfy the demand of the nuclear power plants.
Supply issues. 1, The low uranium prices has caused most uranium producers to reduce or entirely stop production, this includes the two largest producers in the world, Kazatomprom has reduced their production by 20% until 2023 (https://www.world-nuclear-news.org/Articles/Kazatomprom-extends-uranium-production-cuts-into-2), Cameco has kept their McArthur mine closed since 2018 (this is the largest high-grade uranium deposit in the world). Starting up a mine that has been closed for years can take a long time (many months, maybe more than a year). Most of the uranium mining companies that you will find on the stock market are not producing at all due to the current low price or uranium! They know that uranium price have to rise and they can't afford to produce at the current price. Many companies will not even consider production until uranium reaches ~$65/lb; 2, covid caused further reductions in uranium production; 3, Due to the decade long uranium slump since Fukushima there are very few companies in the sector, 30-40 companies are involved in uranium mining, a resource responsible for 10% of the worlds electricity generation!
Demand. 1, 10% of global electricity comes from ~440 nuclear powerplants, these powerplants need a reliable supply of uranium. Uranium is a minimal part of the cost of running a nuclear reactor, to the plant operators it does not matter that much if the uranium costs $30/lb or $100/lb; 2, Despite all the naysayers who think nuclear is dying, the demand for uranium is expected to increase for the foreseeable future. ~50 new nuclear plants are planned or under construction. Old reactors that were supposed to retire are having their lives extended. Many countries will not be able to reach their CO2 reduction goals without nuclear power; 3, due to the low price of uranium a lot of the former uranium producers are now buying uranium on the spot market and stockpiling it, they know that the current prices are a bargain and that they have to go up. 4, the US is establishing a uranium strategic reserve and plan to start buying up a total of $1.5-billion of uranium. 5, Maybe the most important factor is the Sprott Uranium Trust that entered the market two weeks ago. The Sprott trust was created to capitalize on the current situation, they plan to buy and hold uranium until the prices are significantly higher. Since they entered the market 2 weeks ago the uranium spot price has steadily risen by >10% and just reached its five-year high today ($34.63). Mind you, this is still very low.
Why should you care? The combination of supply and demand issues will cause the uranium price to rise. It just reached a 5-year high and I would be surprised if it does not reach $40/lb by the end of the year, it is reasonable to expect it to reach $65/lb in the next two years.
So, a doubling of the uranium price in a couple of years, what's the big deal you might say? Maybe you think your favorite investment is likely to more than double in two years?
Well, turns out that most of the uranium companies (producers/developers/explorers) are heavily leveraged to the uranium price. If the uranium price doubles, most of the companies in the uranium sector are likely to much more than double, by how much depends on the company. In addition, many of the uranium bulls think that uranium prices might go much higher than $65/lb and maybe reach even higher than they did in 2007. In any case, there is money to be made in the next few years in uranium.
Risks: 1, another Chernobyl or Fukushima would of course be bad news for the entire sector. However, the existing power plants still need uranium and the current uranium price is still too low, so it is possible that some gains will be maintained even with a bad accident; 2, Increased number of plants retiring. Some countries, e.g. Germany, are retiring all their nuclear power plants. If more countries follow suit it will over time reduce demand; 3, In theory it might be possible for producers to pick up the slack faster than expected and reduce the supply shortage and put a damper on the rise in the uranium price. So far, this does not seem to be the case, but even the low cost producers are limiting their production, and new or mothballed mines take time and resources to get up and running. So, while there are risks, I think there is more than a good chance that we will see at least a doubling of the uranium price.
This is obviously not investment advice, I don't know anything about all of this and you should definitely do your own research. Personally I'm invested in a bunch of different uranium companies: DNN, GLATF, CCJ, PALATF, CVVUF, STTDF. And I plan to continue buying if there are any dips and maybe start buying into the Sprott Uranium Trust as well (SRUUF). Oh yeah, the plan is for SRUUF to get listed on the NYSE this fall, that should hopefully bring in a lot more money into buying physical uranium and continue to drive up the price.
Submitted August 31, 2021 at 06:54PM by SnooRecipes8920 https://ift.tt/3DD99Xa
