Choppy Waters in Uranium

I think I have less value to add when things are going great. Lately things have been busy and I have focused more on other things. Also, when things are doing great, I do not see a need for me to be a cheerleader for uranium. After this week, I think it is timely for me to write another post.

When things are not great, I find it more helpful to focus on strategy and conviction rather than the everyday movement in the underlying companies. That is why I myself have used articles like “Would You Have Made a Fortune in Uranium?” to prepare already.

The Ghost of Fukushima

This week we have seen an article with the sensational title «US assessing reported leak at Chinese nuclear power facility» from CNN on 14. June. This was shared around a lot on Twitter, and for some uranium investors the ghost of Fukushima made them sell down some of their positions. (This article was not in a vacuum. Other commodities also sold down with other news. I am just following uranium the closest. Afterwards this article has been debunked as a non-story). I think Nick Jones @Grainjones made a great call on 13. June. He said that the sentiment in the uranium sector was very positive. With everything so positive, we were almost looking for a reason for a correction. 

I have not checked the value of my portfolio once this week. I have been very busy at work, and a glance at my Twitter news feed has told me all I need to know. I do not need to check my portfolio going to red for more confirmation. I know it is down by a lot. Bigger drawdowns are scenarios I have been prepared for. The companies in my portfolio are not for sale for a long time, so why would I want to know what people are offering for them at the moment? If I am not seeing my positions being a good value in a year’s time, I would look for new prospects. These are not “set it and forget it” positions (something I do not believe in anyway), but the exit triggers are not showing themselves on the horizon yet.

I still believe in a coming bull market for commodities and uranium. The uranium bull market does not have to go as far, or as high, as the last one. I think my heavy weighting to the sector will see me well rewarded by the time we hit $60. 

If this is a short correction, or a longer consolidation period like we have seen the last year in gold, remains to be seen. We also have “Murphy’s law” that says: “Anything that can possibly go wrong, does.” Even though I like the Interstellar explanation better: “Murphy’s law doesn’t mean that something bad will happen. It means that whatever can happen, will happen.” 

This is very close to something one of my track coaches always told his athletes. “Anything can happen, anytime.” (Maybe it does not work as well as a translation). He told us this so that we would not be afraid to try to break boundaries. There are still possibilities for bad news that kills our investment thesis entirely. There are also possibilities for more positive news than we dare to imagine. This can make the upside bigger than many of us are expecting. I still have my chips at the table. I am not yelling “buying opportunity”, but I am not close to selling.

Conclusion

For my part I do not see us close to any target price for uranium. Some of the mines on care and maintenance will come back online around $45. However, we will need more than the care and maintenance mines back online to supply the market. I am also excited to see what Sprott (and YCA) will be able to do with the spot price when they start their buying later this summer.

We see a lot of positive news flow for the sector that implies higher demand for uranium in the future. Almost every week we see announcements for reactor restarts or for new plants proposed. Black Swan events are the only scenarios I see stopping this development.

Yes, there is an abundance of supply of uranium in the world. It is however not readily available for everyone at a price under $40. Some commodity investors think uranium mines can come online quickly to meet this demand. We will see, most of us know that getting any mine online is not done by a flip of the switch. In addition, the fuel cycle takes about two years from the ground until it gets in the reactor.

Our more technically inclined investors have said that some of the charts have been stretched lately. This correction therefore will get the price of the shares closer to the 50 and 200 day averages. (In many instances we are under the 50 day average). Nothing goes up in a straight line.

Again, nothing says the correction has to stop here, and we can’t go further down, but we are at least digesting gains from the last couple of months.

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