Our Uranium Bull Market Thesis Still Holds Strong
by PhuketGuy, June 2022
Uranium stocks have been sold off (many up to 50%) over the last few months partly due to a 30% correction in the uranium price after it has run up 100% in the last six months and almost 200% over the last 18 months. Also as many uranium stocks were up a lot before this latest nasty six-month market sell-off investors who want or need cash in bear markets tend to prefer to sell off those stocks that are in the green first not those in the red.
Despite this nasty and rather incessant selling which is slowly sandpapering us all to death, we still believe in and hold to the same thesis we had when we called our first uranium stock 10 bagger potential in 2021. Indeed maybe even more strongly now, as the fundamentals in the uranium market continue to play out pretty much as we envisioned.
Lets recap what those potential uranium bull market fundamentals are:
- All the world's governments realise the need for and are now legislating towards lower carbon emission power generation, electrification of vehicles. So a more non-hydrocarbon source of base load power is needed.
- Out of all the greener or clean-air options including wind, solar, hydro, it is only nuclear power that allows for a reliable big supply of baseload power. The world is therefore turning more to nuclear and either building a load of new or reopening shut down nuclear plants over the next decade.
- As the need for uranium grows it still costs less than the cost to produce it. This is due to the large uranium stockpiles that were overhanging the market after the last uranium bull market and the slowdown in nuclear power usage after Fukushima.
- Today the world currently uses around 200m lbs per year of uranium (and that's increasing fast) but only produces 120m tons per year (and that's reducing as the existing bigger mines dry up.) Until now the shortfall has been covered from these global stockpiles, but now they are also running out - particularly due to the new uranium physical funds (mainly the Sprott fund) buying up over 70m tons of physical and holding it off the market for good.
- So if we are to go green and the world’s lights are not to go out, where will the large required new supply of uranium come from?
- The existing AISC (All In Sustaining Cost) cost for the bigger and cheaper uranium suppliers is now over $60 and closer to $70 per lb. Therefore the price of uranium will firstly have to go to $60 or over to ensure the existing mines continue to produce and restart to increase capacity. Looking ahead the current existing mines won't supply anywhere near enough annual capacity to meet the growing and projected demand.
- Therefore to incentivise new investment in exploration and the development of new mines and production - often more marginal and less economic than the existing best ones today - the uranium price will surely need to go even higher to over $70 per lb at the very least and probably way higher given how its has overshot in the past.
- This price discovery process should play out over the next 6-36 months if past uranium bull markets are anything to go by. This is because the uranium market is so small with not more than around 70 listed companies involved and most just small-cap. (Many individual oil, pharmaceutical, tech or banking companies are way way bigger than all the listed uranium companies put together. So as this price rediscovery process plays out – if the past is prologue – there will be many retail and uranium equity funds rising and filling with new cash and buying up extra physical uranium and the tightly held uranium equities which will force prices higher, which will in turn attract more institutional and retail money,and work itself up in a great beneficial upward spiral and the small uranium market culminate in an overpriced blow off top top sucking up all the stocks involved in that business. At least that's what happened the last two uranium bull markets over the last two decades – and looks likely again.
- From experience, although the bigger uranium companies and producers tend to move first, the biggest and fastest gains were ultimately made in the smaller more speculative explorers and developers towards the end of the bull cycle. Therefore we chose the five uranium companies we have in our 10 bagger portfolio. And we may pick another one or two promising stocks soon if their prices keep falling.
- With Japan now actively reopening its nuclear power fleet of reactors and over 50 more currently being built in China and Europe. There are increasing subsidies flowing to uranium and clean energy policies in North America and the EU. This process is now playing out probably even stronger than we expected.
- So despite the recent uranium stocks price retracement (which is a function of the general sucking of liquidity from all markets by the Fed and other governments to reduce inflation). But the growing demand for green and nuclear power continues unabated - and the acceptance by governments and populations of nuclear power as probably the best big option on the table (despite its nasty nuclear-waste issue drawbacks – which is however now being better dealt with now with new technologies).
- The world is already using more uranium again than before the Fukushima disaster, but production is still way down. We do not see this demand growth slowing, and hence prices simply have to increase to incentivise growing supply.
- For example, (as mentioned in Justin Hahns the video below), some recent large-scale, longer-term utility supply contracts for 2023 are now securing their base price as $60+, whereas last year they were still based at around $40. This base price in a term contract accounts for about 40-60% of the supply and - the pricing of the balance fluctuates depending on spot market prices. (So obviously the big utilities - the real buyers and end users - are also expecting the market to move considerably higher next year).
- We know it's hard holding on to a thesis when you are getting your financial teeth kicked in and feeling self doubt like now, but things can turn on a dime particularly in the smaller uranium market. So we strongly suggest members keep the faith and hold tight, relax and weather the storm, or even DCA into some more stocks down here or if it goes lower. Remember “buy them when you hate them, sell them when you love them” usually always works. And there's some hate in the air right now.
- On that note, when the next rally comes, and it will, and you have that euphoric feeling as your uranium stock prices hit new highs - and you believe your uranium stocks can go up forever, and you start planning what you will do with those fat profits, then probably sell a few – because when your gut and emotion tells you all that love stuff – much more often than not, it's usually a temporary top, and you’ll regret not selling later when it’s reversing back again.
- Stocks and commodity prices, as you know, never go up in a straight line; they go up jiggly, with sudden bursts ahead then unexpected retracements. It's normal. So learn to ride those waves better. If you sell and take a profit and it goes on up and you curse yourself, relax at least you sold and took a profit, and there's nothing wrong with that. And often, you’ll find a bit later it was the right thing to do. Your gut feel often has more brains than your over-emotional and excitable head – so listen to it more.
We hope this all helps. Your committee members are also starting to re-buy more again down here, and we will continue to DCA (Dollar Cost Average) in if they fall more — which is quite possible given the severe monetary tightening environment we are in.
In addition we have identified one more very undervalued new uranium play - which we are lining up to call as a new ten bagger very soon.If you want to buy in early at a low price go ahead and join the club. You will be paying US$200 to know a new stock early, likely to ten bag in the next 6-30 months. You should make that money back in spades. Also you get all the added benefits of being a club member.