I’m hearing a lot of bullish chatter on uranium right now—and after listening to all of it in the last 3 days, I’m still not sure about the trade.
I made my first big grubstake on uranium stocks in 2006-2008, so I know a little bit about it. And I’ve known enough to stay as far away from uranium as possible for the last decade. But now what’s old is new again, in a couple ways.
One of the big reasons uranium stocks had a huge run in the mid 2000s was because legendary mining investor Eric Sprott started a fund to purchase physical uranium supply and tighten the market. That was so long ago, I’m not sure how well he succeeded but literally dozens of stocks were 5-10 baggers or better. I paid off my first house with that sector.
Now Sprott’s old firm is taking over a uranium holding company (they own physical yellowcake–U-TSX) and plans to
- turn it into a fund,
- list it in the US
- raise several hundred million dollars
- and buy up physical uranium again
To me it sounds like the exact same business model that took the industry market cap from millions to billions.
In the intervening 13 years, uranium bulls have had to muddle through a few issues. One is that the green movement can’t decide if uranium is good or bad. The second was the Fukushima incident in 2011 in Japan where a tsunami overwhelmed a nuclear power plant, causing the cores to melt and turn public opinion against nuclear for a decade.
From what I read, uranium demand is slowly increasing. But still, prices have been so low that the world’s #1 producer, Cameco, has had not one but three of its largest mines offline for years at a time as 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 large suppliers have HUGE excess capacity, but show enough restraint to convince the Market of their madness. One big difference between the two commodities is—the oil price and oil production was moving up immediately prior to COVID, indicating a robust market. That was definitely not happening in uranium.
I don’t think we are in any danger of being short oil in the coming years, and I think that’s the same for uranium. There’s LOTS of the stuff around. It’s a bit of a manufactured scarcity—but the Market may be willing to pay for that.
Uranium bulls point to two of Cameco’s Saskatchewan assets being depleted by 2026—just in time for the largest uranium deposit the world has ever seen—the Arrow deposit by NexGen (NXE-TSX/NYSE) come online—also in Saskatchewan..
Saskatchewan’s Athabasca Basin is a freak of geological nature like the South African platinum, or even South African gold—it’s so high grade most geologists—and the public—have a hard time wrapping their heads around it.
Even saying that, the Arrow deposit is a freak of nature. When it gets into production it will account for over 20% of global production. There is no other mine in any other commodity in the world that comes close to that. High grade, huge—by definition it will be a low cost producer.
So fundamentally, I’m not convinced uranium deserves a much higher price. Can the producers bully their small customer base (the large utility companies) into paying a higher price through manufactured scarcity? Maybe, but I would not be betting my last dollar on it. I see in the U-TSX powerpoint that they are expecting a big increase in Asian utility buying starting in 2025—new demand that will hopefully increase prices. Hey, I hope it’s true—I really do want everybody to make money.
And speaking of prices, the published spot price is only a small volume mechanism, compared to the huge contracts signed between producers and customers. So while it is valid, it’s not COMEX either. (To be fair, the spot market has been increasing its market share the last few years.)
Also–a decade ago wind and solar became the big alternative power sources, and now it’s lithium and hydrogen eating uranium—and uranium investors’—lunch. Is that going to change? Are politicians going to score ESG points by touting uranium? Are ESG funds going to score ESG points—by buying uranium instead of the latest EV or solar technology SPAC? Not sure about that.
But if the bulls are right, these stocks have a long way to go in this liquidity fueled stock market. Most of the stocks I bought 6-8 months ago are up 3-8x. Cameco (CCO-TSX/CCJ-NYSE) is not even a double yet. Nexgen (NXE-NYSE/TSX) is a little over a double. Denison (DML-TSX/DNN-NYSE) is a triple. All these stocks are inter-listed in the US, giving them great liquidity.
So it’s deja-vu all over again. In the mid-2000s, uranium prices had been low for a long time. Then came a new business model to spur prices higher. Now that man’s namesake company (Eric is no longer part of Sprott) is doing the same thing again 13 years later, in the exact same market conditions. Maybe lightning strikes twice—well it already is as these stocks are running now and the premium to NAV for U-TSX is at the upper end of its range.
Uranium won’t be A Big Trade for me. But I do own a small amount of U-TSX for physical exposure, and some URA-NYSE—the ETF that owns the stocks of all the uranium producers and developers (like Nexgen).
I’m not sold on this trade. But I am long. Here’s a list of the Top 10 Holdings for the URA-NYSE ETF.
