I hope you all have recovered from Friday’s euphoric mood in the uranium sector. With some time away from the markets, I hope you have had time to digest all of the impressions.
Sprott stole most of the headlines on Friday. They released a press statement saying they had filed an amended base shelf prospectus for their Physical Uranium Trust. The total is now for a $1.3B ATM financing to buy more uranium. This is up 1B from their 300M financing they already had in place. What many forgot about in the gif fueled excitement were the life extensions of the Illinois power plants. I think there are reasons why we should not ignore them.
First of all, saving Byron and Dresden is great for the climate. (One can get into a discussion about if subsidies are the right solution for this, but I am not going to get into that here. Nuclear has had enough headwinds and resistance the last 50 years). If you want to convince me you want to save the environment, you can not close down the most effective and most reliable power source there is. You can not run your country on 100% renewables. You need steady base load power.
The Byron and Dresden plants were set for closure, and therefore they do not have a lot of inventory on hand. With the extensions they now have to go looking for fuel, as soon as possible. Exelon, the owner of the plants, says they have ordered fuel to keep the Byron plant running past its 13. September deadline already. I will quote Harris Kupperman (also known as Kuppy) who wrote: “as a reactor that runs out of uranium is just an expensive paperweight”. Short term Exelon might want to source fuel from the spot market, but the mid and long term market is where they would want to go longer term. The demand of the power plants who got life extensions is about 3M lbs per year. This has to be updated in the supply and demand models of the research and analysis companies. A couple of more life extensions and the models have to be completely redone.
The last couple of years the utilities activities have been very low in terms of contracting. This might be the first step, helped by Sprott, to get more utilities into the contracting game. If the Sprott uranium trust is not there to buy the pounds, you risk the price going down again. (FYI, I do not expect Sprott to stop buying). Now we have at least one of the utility companies having to source more uranium. Our thesis has mainly been about utilities demand. I look at Sprott as the lighter fluid and the spark, with the utilities as the logs you put on the fire to keep it going all night. I might have to reassess my view and admit that Sprott is more important than I first thought. It is more like another energy source to both light and keep the fire burning, and not just the spark. Maybe I should compare Sprott to oil.
Up until now, the spot market for uranium has been a disaster. The lack of activity has made it impossible to get real price discovery. In short, it has been a broken market. Together with very low long-term contracting, it has created the whole investment opportunity for us. Being taught about the Efficient Market Hypothesis in business school, I should not have a chance to beat the general market. I have avoided this by investing in a non functioning market. Why would I go fishing where the competition is high? I would rather pick the far off, hard to climb mountain lake that no one wants to use.
Going forward my plan is simple: Do not do anything stupid! (Sell too early).
What to do if you get questions on why you support nuclear
I have seen a couple of people discussing nuclear power this week. This is a natural result of the interest in uranium going up on Twitter with the returns. Some people say that they can’t invest in uranium because of ethical reasons. This usually means that they think uranium mainly goes to nuclear weapons. They do not know that the uranium and nuclear market is heavily regulated. Every pound of uranium has to be accounted for through the whole supply chain before it reaches the end user. The main user for uranium is nuclear power plants.
We have the age-old: «What about Three Mile Island, Chernobyl, and Fukushima?» Nuclear is just too dangerous compared to the risks. We also can’t forget about: «What are we going to do with all the waste?» objection.
If you have had problems answering any of these questions or objections, I suggest you watch this video:
I hope you have a great week, and that we continue to see more positive developments for the sector.
