Positive developments for uranium

This has been a very interesting week to say the least. Cameco delivered their Q4 2021 numbers, France announced plans to build up to 14 new nuclear reactors and the U.S. Department of Energy announced a $6 billion Civil Nuclear Credit program.  

On Wednesday 9. February we had Cameco reporting their Q4 2021 results. What got most people talking was the announcement that Cameco will start up production at McArthur River production again (although below the annual licensed capacity). Cameco has already communicated on several occasions that McArthur River will not start production before the pounds they are producing are under contract. I read some publications interpreting the call as negative, but I could not disagree more. Cameco has signed 70M lbs under contract since 2021, and 40M of them in 2022 alone. For all of 2020 Cameco signed 12.5 million pounds in long term contracts. Long term contracting finally looks like it is increasing, although from very low levels. It will be very exciting to follow the developments in the next couple of quarters.

Out of France we had President Emmanuel Macron saying that France will construct six nuclear reactors, and study the possibility of commissioning a further eight.

Macron said: “Given the electricity needs, the need to also anticipate the transition and the end of the existing fleet, which cannot be extended indefinitely, we are going to launch today a program of new nuclear reactors.”

Following this, on Friday 11. February, the U.S. Department of Energy announced a $6 billion Civil Nuclear Credit program.

The U.S. Department of Energy (DOE) today released a Notice of Intent (NOI) and Request for Information (RFI) on the implementation of the Bipartisan Infrastructure Law’s $6 billion Civil Nuclear Credit Program. The nuclear credit program supports the continued operation of U.S. nuclear reactors, the nation’s largest source of clean power. Both the NOI and RFI are critical first steps to help avoid premature retirements of nuclear reactors across the country, preserving thousands of good-paying clean energy jobs while avoiding carbon emissions. 

energy.gov

We have already seen several positive developments in other parts of the world. The US taking action is great.

Anchoring

With all the positive developments, and possibilities of high returns, it is important to remember to prepare for the best case and not just for the worst. I use anchoring actively at the moment to be at least prepared for this.

Anchoring is a behavioral finance term to describe an irrational bias towards an arbitrary benchmark figure.

We see several examples of this. In oil there is for example something magic about trading above $100 per barrel. We see similar price levels in many commodities. You also have anchoring used in sales. For example you have a used car salesman offering a very high price for a car at the beginning of negotiations well above its fair value. The high price acts like an anchor and often results in a price higher than if the salesman started at a fair value. Also, if you see a t-shirt selling at $1,200, the next one you see, even if it costs $100 will seem cheap in comparison.

There are also real life examples of anchoring. They can look very similar to the ones we have in investing. I had a running buddy that for years could not break the 2 minute barrier in the 800 meter race. This can be compared to a resistance level in a trading chart. (A price level a stock is not able to get over). However, when my running buddy finally got under 2 minutes, he was able to repeat this for several years in a row. Even if he got injured, got out of shape at times, he knew he had done it before and managed to do it again repeatedly because he had done it before. What was impossible before was possible, almost inevitably possible. Analogous to trading the 2 minute barrier had become what you could consider support in a stock chart.

With investing I’ve had a similar situation. When I first started out, the big round numbers were always far away impossibilities. However, after several years of investing I broke down several of these barriers on the way. At the November 2021 highs I was around an area I had found almost unattainable at the start of 2019. (And yes this was in hindsight a great area to take some profits off the table and buy back cheaper three months later). The benefit for me after the fact is that I broke a mental barrier by just holding on and getting to this level. Now I have an anchor at the valuation my portfolio had in November, and it does not look that imposing anymore. I am getting more used to that level, and I will not be as stressed by getting there again as I was three months ago.

When we talk about anchoring in psychology, we mostly consider it as a behavioral bias. There is absolutely no rule saying my portfolio has to go back to its November 2021 high. There are a million things that can happen to the market, and the world in general, that can stop a market in its tracks. (In addition, nothing says you have to get back to the same level the same way you got there the first time). As an investor I am aware of this. I am also aware that people self sabotage themselves at important inflection points in life, and in trading. People talk themselves out of doing stuff that would improve their life considerably every day, and many do not get to the next level because of this.

I am therefore using this anchoring consciously to avoid the worst of this. I have obviously invested in the natural resources markets because the fundamentals say that for production to increase, the price has to go up. I have a very strong conviction in this, and I have put most of my funds in on this bet, but there are no guarantees in life. If we get back to previous highs I will at least be ready for it. It is important to think about the worst case scenario, but you have to know what to do when you find yourself in the best case scenario.

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