Yes it is. But before we go on, I am obligated to tell you this is not “financial advice.” I’m not a professional, I’m not rich, and quite frankly, I might be dumb. Now that we got the disclosure out of the way – let’s get rich!
The story begins in September 2021, with me perusing the very popular page on Reddit. You may have heard of it: r/wallstreetbets. Feel free to read through it at a later time (citations below), but this is the gist of the thesis.
The world is moving towards Green Energy, and renewables (wind, solar, geothermal, hydro) cannot meet the growing demands of the world’s electricity needs. Windmills only produce electricity when there is wind and solar only produces electricity when there is sunlight. They take up a lot of land to install, and they produce a lot of waste. Battery technology is not advanced and cheap enough to be a viable way to store mass amounts of electricity. In comes uranium, the fuel for nuclear energy that can provide consistent and reliable electricity to the grid with zero emissions.
The price of uranium plummeted after the nuclear meltdown in 2011 at Fukushima, where 20 people, mostly elderly, died during evacuations. In an overreaction (10 people died at a Travis Scott concert in 2021), Japan and other countries (see Germany) decided to phase out all nuclear energy from their portfolio of electricity production. This created a glut of uranium supply. Mines had to shut down due to the price of a pound uranium falling way below the cost of production. Since then, nuclear utility providers have been gobbling up the above ground supply of uranium, slowly bringing the price back up.
In comes Sprott Uranium Physical Trust, an investment fund that buys up pounds of physical uranium, taking pounds off the market forever. When the shares of the fund trade above Net Asset Value, they sell shares and buy more pounds of uranium, driving up the price. Since September 2021, the price per pound of uranium has gone from $40/lb to as high as $106/lb, before settling at $90/lb in the present day.
Yearly demands for uranium currently exceed pounds being produced by miners. The above ground pounds of uranium are filling the demand gap for now, but most insiders believe these pounds are close to being depleted.
Since 2021, many countries (including Japan, not Germany) finally realize that nuclear power must be part of their energy mix and plan to build new power plants (not Germany though) while extending the life of their older plants. Clones of Sprott Uranium Physical Trust funds have been appearing, further buying up the supply of uranium. Just recently (04/30/24), the Senate Passed a Bill to ban Russian imports of uranium and sent it to the desk of President Biden waiting to be signed into law.
The uranium bull market is likely to last for a few years. Most utility operators sign multi-year contracts with uranium producers, so their pounds of uranium are likely to be secured for the next couple of years. However, the power plants that have their licenses extended and power plants being built will need to find pounds of uranium to meet their needs. Restarting operations at mines or building new mines is a long process, taking several years before a pound of uranium is ever produced. Even producing mines at times have issues producing pounds. Kazatomprom, a veteran in the industry, is producing fewer pounds of uranium a year due to the lack of sulphuric acid needed. Until then, the supply of uranium continues to diminish as the demand continues to grow.
The price of uranium and the uranium stocks have more than doubled since 2021, and it is reasonable to believe, due to the current market condition, that prices will continue to go up. Prices will reach its peak and begin its descent once there are more producers coming online, and supply will be greater than demand. Most new producers will not begin to produce pounds of uranium until at earliest, 2026. Other risks to the industry are another nuclear meltdown or nuclear war, but we will just pray that never happens.
So you might be thinking, “how do I get in this market?” Before I drop any ideas, let me remind you this is not financial advice.
Physical Uranium
The least risky play is to buy physical uranium through the many trusts whose sole purpose is to stack pounds. The largest in the market right now is Sprott Uranium Physical Trust $SRUUF. When the share price is greater than the market value of their uranium holdings, the trust will sell shares and buy more uranium to reach an equilibrium. However, there are times when shares of a trust are being traded at a discount to their assets, and that discount can last months or even years. Some may see this as an opportunity to buy more shares while others will be frustrated, especially those who want to sell some shares, but not at a loss.
Large Uranium Producers
Established uranium producers like Kazatomprom (not traded in the US) and Cameco $CCJ have a proven track record of producing millions of pounds of uranium a year. Cameco, specifically provides services throughout the whole nuclear cycle. Cameco produces pounds of uranium, converts and processes uranium to fuel, and with their recent joint venture of buying Westinghouse, designs and manages nuclear power plants.
Higher uranium prices will lead to better long term pricing for these companies. However, due to their businesses being tied to long term contracts, their upsides are capped when they have to deliver pounds of uranium at the contracted price, which may be significantly lower than the current market price of uranium. Furthermore, these companies’ margins may be squeezed if they are unable to produce enough pounds of uranium to meet their delivery obligations and will be forced to buy pounds in the spot market at a higher price.
That being said, Cameco is seen as the best in class in the uranium sector and is headquartered in Canada, a US friendly and stable country. Institutions will be more willing to pay a premium to own shares of Cameco than Kazatompron, which is located in Kazakhstan, a close neighbor to Russia. The price of Cameco should go up as long as the uranium market continues to gain in popularity.
Small Producers / Restarts
Smaller uranium producers who are restarting their mines, especially ones with a proven track record of producing pounds of uranium in the past will provide further upside to a portfolio. One such company is Paladin Energy $PALAD. Paladin recently restarted drilling for uranium on 03/30/2024 and is expected to produce around 6 million pounds of uranium a year. Companies that begin drilling now will have a greater upside in future contracting prices as they are not held back by the low contracting prices of years past. Paladin specifically has only contracted out about 50% of their expected production. However, there are still risks as drilling is hard. Costs can be higher than expected and they may under produce expected pounds of uranium.
Hopes and Prayers Companies
These companies have the highest potential upside but present with the highest risks. Some of these companies have never produced a single pound of uranium and never will. However, if they are successful, your initial investment can 10x plus in a short amount of time.
One such company is Deep Yellow Limited $DYLLF. Their whole executive team is comprised of the who’s who of the uranium industry. Imagine getting Lebron James, Carmelo Anthony, Dwyane Wade, Dwight Howard, Tracy Mcgrady, and Tim Duncan all on one team. The question is, can they still play in 2024. Their projects in Namibia and Australia look promising and the company expects to produce pounds of uranium in late 2026. The stock is currently trading at $1 a share.
Peninsula Energy Limited $PENMF has projects in Wyoming and is expected to produce 2 million a pounds a year when they start drilling. When is that going to occur? Who knows. But the shares are being traded at $0.07/share. That’s right 7 cents! If this sounds like a gamble, it’s because it is. However there may be a possibility they get acquired due to the projects in the United States.
URANIUM ETFS
If you don’t want to pick individual uranium stocks, you can get an ETF which is a basket of uranium stocks such as Sprott Uranium Miners ETF $URNM or Global X Uranium ETF $URA.
I own shares of $SRUUF $CCJ $PALAD $DYLLF
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