I see that it is close to one month since my last post. The reason for the long wait is that I was in the most hectic part of the year at my job. In addition, I also got married with all the preparations needed for making it a special day. With all of this behind me I have some time to write another post.
The uranium market had already started being choppy by mid June. By the time of my last post, we already had the news of 14. June about the Taishan nuclear plant in Southern China from the CNN article: «US assessing reported leak at Chinese nuclear power facility». This started the correction in a market that was looking for a reason to go down. The people who have not built conviction in the thesis have struggled. From watching Twitter one will also have noticed how short term focused a lot of people have become. We have corrected down in some of the companies. However, we have to remember we had 50% pullbacks several times in the last bull market between 2000-2007.
We also had a forest fire in Saskatchewan, Canada, that led to the evacuation of 230 workers at the Cigar Lake mine on 1. July. This led to a temporary suspension of production, but luckily the workers could get back to work a couple of days later without any damage on the installation. I for one am happy to see that the measures Cameco had against forest fires worked as intended. I am sure when they planned the mine, precautions against forest fires were one of the priorities.
On 6 July Kazatomprom announced that they have extended their 20% production cut until the end of 2023. They say the reason for this is that the uranium market is still recovering from a period of oversupply. I for one believe the 20 % production cut will be more than compensated by a higher price in the market by that time. They also want higher uranium prices for putting future production online and the new CAPEX investments they will need to make.
Keeping your emotions in check is a must to weather the ups and downs you experience in a commodities bull market.
In 2019 and 2020 we had two big drawdowns. One in July 2019 and the one in March 2020. I used the two of these as practice to prepare mentally. The correction we have been going through the last month has been the first real correction since the bull market started. (Even the notion that we are in a bull market is still contested by some. The spot is not above $35 yet, and one can say that we still do not have confirmation. I think that by waiting for confirmation, you risk the market getting away from you. If you only place chips on the table when you know the outcome in advance, you will have to settle for a lower return).
Because I was not buying much during this period, I stopped checking the value of my portfolio. (I still kept up with all the news and developments). The only time I logged into my account was to add to some of my positions. Other than that I made an extra effort to get out in the sun, and focus on other things than the markets. Living in Norway, we risk the Summer only lasting with a couple of days of sun, and the rest of them being gray and rainy. Spending time outside has therefore been a priority. Other priorities have been time with family and friends, or reading a good book. Thinking back on the two other corrections I have been through already has also given me some perspective. It could be a lot worse, and nothing says it cant go further down than what we are now.
One part of my tactic that did not work as planned was focusing on my other commodities positions. Uranium is generally not that correlated with the other commodities. The last month however, my other commodities positions also corrected down at the same time as uranium. With exception for my oil position, my gold, silver, copper and tin positions went down in June. (Statements by the FED and China had some of the explanation for this). The safe harbors for speculators and investors in the later part of June were big tech and coal. I do not believe that big tech will be a winner going forward, but coal is a commodity we will not be able to cut our dependency off for a while.
I have also tried to find some new possibilities for a real bear case. I have written about some of them already here, but generally most people in the sector are very optimistic. Outside a general stock market crash, or a new nuclear accident there are few real threats. One bear case I have been toying with is that we could see government intervention in the market if prices get too high. (Similar to what we had with the Hunt Brothers in the silver market in 1980. The Hunt Brothers were forced to sell out of their position). This might seem a bit far-fetched, but we have thought of the most plausible and obvious bear scenarios already.
Over the coming months I will go over my portfolio with a critical eye. I am still happy with having mainly developers or near term producers in the portfolio, but I might cut a position or two. A more focused portfolio with less names with higher conviction is what I aim for. The last two and a half years have been an exciting ride and I look forward to the road going forward.
“Don’t count your chickens before they’re hatched” applies to all of us, even though I like the Norwegian version better: “Do not sell the skin (of the bear) until the bear has been shot”. Load your weapon and happy hunting!
One thought on “Our first test of conviction”