It can’t all be positive news

lake and mountain

It has been two weeks since my latest uranium update and it has been a very eventful time. We had the announcement of China planning to build 150 reactors last week. This is massive news that will have a huge impact on demand going forward. Late this week the sector got more somber news with the Clearwater River Dene Nation serving notice on the uranium industry regarding impacts of uranium mines and exploration in Saskatchewan Canada. This has led to some heated discussions and a lot of opinions.

The CRDN community has:

grave concerns about the potential impacts and risks posed by an increasing number of uranium mining and milling projects and exploration activities occurring within its Traditional Lands.

This is a serious issue and should not be swept under the rug. The mining industry has a long history of not treating all the different stakeholders fairly. (Workers, the environment or investors etc). In Canada it is not unusual for mines taking 10-20-30 years to get into production. There are a lot of environmental permits and social approvals needed before you can start production. I wrote about my allocation to Canadian companies on 14. March 2021, and permitting is a big reason why it was on the smaller side compared to other jurisdictions.

Challenges in terms of permitting in Canada have never been a secret. Compared to grades, and quality of assets, the Canadian companies have been trading at a discount compared to companies in other jurisdictions. Episodes like this proves that a discount might be warranted. Social licence being an important part of the mix. I am also certain that some companies are better than others in this area, but I do not want to touch the specific First Nations case here because I do not have all the facts. This is a reminder of how important this is. (In Norway we just had a Supreme Court ruling that a wind-park has to be taken down because it was in violation of indigenous peoples’ rights).

Going over some of my earlier thinking

I have read over some of my older articles and I am happy to say that I know more today than what I did a year, or six months ago.

One thing I firmly believe in is that the stock market will very often turn before the general market. When uranium companies rose rapidly at the end of 2020 there was no price movement to speak of in the spot or long term market. Still the equities were anticipating the sector would improve. I mentioned this in one of my posts in July 2021:

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.

1 year price uranium

I think I was right about that one. We can compare the change in equities over the last year compared to the move in spot price. The move in the spot price did not really start before the end of August. If we compare this to three companies: Fission Uranium, Energy Fuels and Global Atomic, they went up about 88% (CA$0,26 to CA$0,49), 174% ($1,74 to $4,77) and 275% (CA$0,64 to CA$2,4) before the spot in earnest started to move from $30 to $47. You miss out on big gains waiting for price confirmation.

Equities have continued climbing up afterwards, but people who have waited for spot price to start running are a lap behind.

Going forward

For me the easy part of this investment is over. Holding conviction when everything is horrible is easy for contrarians. The minute things start looking better, it gets harder. Contrarians want to exit the party when other people arrive. You do not want to leave too early, and let everyone else have all the fun.

I have dipped my toe in the more mainstream crowd this week. I am happy to report that no one I talked to had heard about China and their 150 planned nuclear power plants. (They had only heard about them not attending COP26 in Glasgow). I therefore see the most eager guests are arriving, but we still have a long way to go.

Did we experience our Day of Days in Uranium?

people having a concert

My biggest problem now is making sure I am not a victim of confirmation bias, or that I am missing a key piece of the bear case for uranium. With the newsflow coming out at the moment, I have to admit it is getting harder and harder to see the downside arguments. For the beginning of today’s post I will try something different and hope it is not too out there with my example.

I will start my post with a reference almost no one outside Norway will have heard of. In 1982 Norway was hosting the World Championship in cross country skiing in Oslo. (For people who do not know, skiing is a very big deal here). In one of the events Norway was competing against the Soviet Union in the men’s relay. On the last leg, going into the last kilometer, they were neck to neck when the Norwegian skier made a move to pass the competitor. They bumped into each other, and the Russian skier fell, and the Norwegian broke his skiing pole.

The moment when the Norwegian skier, Oddvar Brå, broke his ski pole has gone down in history as one of the big exciting tv moments. “Where were you when Oddvar Brå broke his ski pole?” is a very common question from my parents’ generation. The end to this dramatic moment was that Oddvar got a new pole, the Russian competitor caught up with him, and they crossed the finish line at the same time, splitting the victory. Also prompting video control of the finish line, as it was the first time the teams were so close. I will add a minute of this moment for people who are curious about it. It is all in Norwegian, but I think the intensity of the commentators will explain the importance of the situation.

This long introduction is to illustrate that most countries have certain collective moments. (The US has the Moon Landing in 1969 as one of the positive moments, in addition to several tragic ones with Pearl Harbor, the JFK assasination, Challenger and 9/11 among others). This week we might have had a similar moment in the uranium sector with the announcement of Sprott taking over management of Uranium Participation Corp on Wednesday 28. April. 

For explaining what possibilities this has for the market I have to give a shoutout to Kevin Bambrough @BambroughKevin for his information on the topic. I will award him MVP of the uranium market this week based on his two threads on the subject that are linked here and here. (If he was not retired many of us would have wanted to suggest him as a person responsible for the new Sprott UPC vehicle). I will try to explain the importance of an investment vehicle like Uranium Participation Corp can have in a uranium bull market.

The previous bull market

In the previous uranium bull market, Uranium Participation Corp was founded on 15. March 2005. By this time the uranium spot price had bottomed out in 2000 and had doubled from about $10/lb in 2003 to the low 20s by 2005 over two years. When UPC started trading they began eating up millions of uranium pounds in the spot market. This started forcing the utilities hands with them having to scramble to enter into long term contracts. In about a year from 2005 to 2006 it doubled again to $40 per pound before the price started to go vertical in 2006 and into the peak around $140 in 2007.

Fuel buyers will always try to avoid buying on spot and pushing the price higher. All they want to do is secure long term contracts for supply and secure production for their power plants. Over supplied markets have meant they could point to a weak spot price and contract as such.

In 2021

The new Sprott version of UPC will become much like the Silver and Gold trusts Sprott has already, and will be able to do ATM issuance. This is very important and not having to wait for a 10-20 % premium before you go to your investors for a capital raise. This is a complete game changer and removes most of the barriers you have in UPC today. The added bonus of having the new Sprott UPC listed on NYSE will give it much better market exposure and make it eligible for many US based funds that can’t invest in Canada. The US market is also 13 times bigger than the Canadian market.

What does it do to market psychology?

Fuel buyers are soon going to see the new Sprott version of UPC emerge and issue shares and eat up supply in the spot market. When they do this the utilities will be following the spot market and price closely. We will also finally be given an answer to what is the depth of the spot market. Another psychological development we will probably see is potential sellers of the spot will likely decide to hoard their supply and see what happens with the price. Brandon Munro has earlier talked about virtuous cycles in the market and this is one of them. If more supply is waiting on the sidelines buyers will have to raise their price up to tempt the potential sellers. I imagine a vacuum cleaner near a pipeline waiting for more supply coming out. Another virtuous cycle we will see is with the increased spot price is valuation of the companies will go up. This again will lead to more liquidity moving into the sector. From being a sector too small for institutional money, growing the market cap of the companies will attract more money from investors looking for returns. Rick Rule has talked about some of the participants in the last bull run who want to relive the past. Some of them might have been caught sleeping and want to jump in as fast as possible.

We are not done with corrections, and there will be negative news also in the future, but we are also seeing more and more positive triggers around us. 2021 looks to be a very interesting year, and maybe we have seen the Day of Days for the uranium sector.