Security of supply

Before today’s post I have to acknowledge the situation in Ukraine. I am against war and invasion of any country. I am not cheering what is happening, and I do not talk about nuclear war in an offhand way. All of my positions were set long before any talks about Ukraine and I am not trying to profit from war. Still, this conflict is making it obvious that security of supply is becoming more and more important. 

Even though few people had war on their calendar for 2022, some speculators have been positioned for scenarios that are similar to what we are seeing today. One of the biggest arguments for strengthening the US domestic uranium fuel cycle during the Section 232 hearing in 2019 was the West’s dependence on Russian, or Russian influenced supply, of critical commodities. It was not only fear mongering to further US producers/developers interests. A substantial part of the world’s enriched uranium is coming from Russia. Sanctions on Russian commodity exports will lead to utilities having to look for supply from elsewhere. This is a big part of the reason we are seeing the upturn in the uranium sector at the moment.

The spot market

On Friday 25. February SPUT moved up over 7% with very high volume. I was watching the follow through closely to see if the spot price would react. I invest, at least partly, in uranium because it is not an illiquid market. If a high volume day of SPUT buying had not moved the price of the trust into a premium to raise money, it would have been a big red flag for me. (Earlier in 2022 we had a Friday where over a million units of SPUT were traded in a couple of minutes, but there were no units issued. There was liquidity enough for this trade to happen without a premium to NAV. For me this was a bad sign that volume like that could be absorbed without a move in the market at all).

Luckily Friday 25 February did not go the same way. SPUT was able to issue 6.66 million trust units raising $83 million in cash to stack about 1.41M lbs of uranium. This led to a two dollar move higher in the spot price to $46.5. For me this is another confirmation in the uranium thesis.

I would like to remind everyone that we are at the “end of month smash” period for the spot price of uranium, where some players are usually trying to force down the price for their spot referenced contracts. With SPUT still at a premium and cashed up, there is at least for the moment a ready buyer for anyone who wants to sell off some pounds to lower the price.

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