I do not think I am alone in looking back at a great week of investing. From the activity on Twitter it seems many have had a hard time concentrating on their work with the spot moves we’ve had in uranium. I am happy that the Australian market is closed before I start work, and the US and Canadian market opens just as my workday ends. It looks like the games have begun.
The depth of the uranium spot market
We have seen much discussion back and forth the last year about the depth of the uranium spot market. In an interview with Smithweekly, Mike Alkin from Sachem Cove Partners said “With a couple of hundred million dollars they can create their own reality in this sector.” (In this setting he referred to the financial players). I have been in the camp believing Mike Alkin and Timothy Chilleri in this, but there have been people taking a different view. They have been saying we would have seen a move in the spot price already if that was the case.
Some people reacted to the euphoric atmosphere on Twitter the last couple of days, saying that sentiment is too positive. First of all you have to consider we just went through a 30% drawdown in July and August. Secondly I would say that it was mainly a cry of relief that a key component of our investment hypothesis seems to be correct: The available supply in the spot is very low. There is above ground inventory but it is not readily for sale, or at least not at these price levels. As Brandon Munro also has commented: when sellers see that spot is increasing, it actually reduces available supply. This is because the sellers see they probably can get a higher price in the future.
With the $39.00/lb spot price in uranium at Friday’s close, the entry of the Sprott Uranium Trust ATM funding has led to a $8.70 increase from $30.30 on 17. August. That is a 28.7% increase in the uranium price.
I think that we were really close at moving the spot price up to today’s levels during the Spring. This was when the developers were buying uranium. Many of them, however, bought pounds several months into the future and did not really challenge the near term spot supply. If we had seen more purchasing with 30 day delivery, I think we could have seen a similar situation to the one we are seeing now.
What I believe we have seen the last couple of weeks is that most of the readily available supply has been removed. Up until now, a couple of traders have (at least in theory) been able to keep the price at or under $30 by selling the same pounds back and forth among themselves. The buyers in the market want to get the best price. Utilities, and producers like Cameco, have been buying in volumes, and with delivery further into the future, so they do not move the price. When production at Cigar Lake halted in 2020 because of Covid-19, we saw the spot price increase by a lot during a short timespan. This was because Cameco had to secure pounds to deliver on their contracts. Securing supply for delivery was more important than waiting for better offers.
As for some of the profit taking and selling on Friday. People sell out of their positions for many reasons. Many investors reached their objectives and have taken money off the table. (If you want to exit a position you would rather do it when there are many buyers and the interest is high). These sellers might enter later when the spot price goes over $40. In bull markets we have to climb a wall of worry. At every resistance level there are participants that expect the trend to turn downward and sell down their positions. I expect a lot of people, new and old, jumping in when we get above $40.
Can SPUT be stopped?
There are some people who are discussing if SPUT can be stopped legally, with them cornering the market for spot uranium as they are doing now. We have the example with the Hunt Brothers in the silver market who were forced to sell their silver position in 1980. At the time silver was going parabolic. (We have still not made a new all time high in silver since then). Concerns about government intervention is therefore something all of us should consider.
I love using anecdotes from when I was a child, I will therefore share one with you here: When I was about five years old my brother and sister entered into a drawing competition in the local newspaper. After a couple of weeks they both received a participation trophy in the form of a calendar. I became jealous and I cried to my dad and asked him to contact the organizers. He called them and asked them to find my picture, but they could find any. My dad then had to explain to me that they could not send a trophy when I had not participated. Nothing is stopping utilities or producers from entering the market and bidding for the pounds themselves.
Kevin Bambrough says that most people won’t even blink an eye under $150/lb and I agree with him there. It is never too early to consider it, but we should not sell or worry at all under $40/lb. We are still under the all in sustaining cost for most producers, very early in the game. John Quakes does not see why or how the US government could intervene to try to stop a Canadian based company issuing shares and raising cash in Canada to purchase a commodity in the market.
In closing I just have to say we are looking at exciting times ahead. I have no idea how far we will go. My positions in uranium are already doing better than any of my investments up until now.
