A 22-minute video covering the uranium industry. An excellent example of how to approach a deeply cyclical resource industry. March Uranium Report The stock catalyst report
Uranium - A New Bull Market Is Dawning, With Mike Alkin
On April 9th 2021, Bruce Greenwald, the founding director of the Heilbrunn Center for Graham and Dodd Investing at Columbia Business School, sat down for a Fireside Chat with Li Lu, the founder and chairman of Himalaya Capital as part of the 13th Columbia China Business Conference. Q1 2021 hedge fund letters, conferences and more Read More
Uranium - A New Bull Market is Dawning
We are Very Bullish on Uranium and the Equities of Select Miners.
- Uranium Market Bottom: After an over 80% decline in the price of uranium and even more of a decline of the stock prices of most uranium miners, we think the uranium market has bottomed and the equities of certain uranium miners are dramatically mispriced.
- Rising Demand: Nuclear power (low enriched uranium is the fuel) is a large scale, 24/7, carbon free and safe source of electricity viewed as a vital tool to help achieve climate initiatives. Uranium demand could grow by over 48% to as high as 266.8 million pounds of uranium (U3O8) by 2030 from an estimated 179.3 million pounds of U3O8 in 2015.
- Reduced Production: Mining at today’s prices is uneconomical. Uranium miners are under water as extraction costs exceed spot pricing – by a large amount. This has led to reduced capital spending by miners on exploration as well as cuts in production. There is not enough production to meet future demand.
- Market Disrupter Displaying Discipline: In January, Kazatomprom, Kazakhstan’s state owned uranium producer and the leading global uranium producer, announced a 10% production cut. This will take more than 3% of production off the market.
- Legacy Contracts are Expiring: Many nuclear power utilities locked into long-term contracts for uranium at the peak of the prior bull market six years - ago. Those contracts are entering a roll-off phase. Uranium miners will not be incented to enter contracts with utilities at current prices. The price will need to rise for utilities to secure their fuel source. 40% of utility demand is uncovered in 2020 and over 80% by 2025.
- Favorable Backdrop Emerging for Some U.S Miners: US energy security is at risk given 20% of its electricity is derived from nuclear power yet it only produces about 3% of its own uranium to fuel the nuclear reactors. Russia and Russian friendly countries control nearly 65% of global uranium production. And that’s a potential major problem for the U.S We expect U.S miners to benefit from a pro-nuclear power friendly Trump Administration.
- Equity Shortage: At the peak of the last bull market in uranium there were over 500 uranium miners. Today, we estimate there are only about 40 contenders for investor capital.
The cash costs to produce uranium are about $25 - $30 per pound, the all-in sustaining cost, when you add sustaining and exploratory capital expenditures, royalties etc., for even the “lower cost” uranium explorers or near term producers is near $50-$60 per pound.
Uranium trades around $24 on the spot market and around $40 for long-term contracts. Those prices are not sustainable for producers – many miners are responding to the low prices by shutting in production.
We expect its price to at least triple from its current $24 level over the next few years.
These shut-ins will lead to a uranium supply shortages just as we are on the cusp of dramatic demand increases from the more than 60 nuclear power plants set to come on line in next few years.
The worldwide demand for uranium is assured because of its electricity generation efficiency, its zero carbon emissions and its low percentage of fuel costs versus other sources of fuel supplies.
The last bull market in uranium stocks generated so much wealth, that those who made a lot of money then will be extremely aggressive this rise. And we expect the stocks to start discounting that move in the near-term.
Uranium Market Background
Uranium’s first bull market was driven primarily by the nuclear arms race between the US and the Soviet Union. Uranium exploration companies then were trading on small regional stock exchanges. Uranium investors enjoyed spectacular returns.
Uranium price increased over ten times during this bull market… from $3 to $43. Some uranium stocks returned over 100 times. Greater nuclear power use was the main driver. It was a cheap alternative to high-priced oil. Disastrous power plant failures ended this bull market—first Three Mile Island and then Chernobyl. New production also came online and flooded the market just as demand was decreasing. The bear market lasted for 20 years.
From the late 1970’s until 2001 the uranium price decreased over 70%. It bottomed at $8 per pound in 2001. For most companies, the cost of producing uranium was significantly higher than the $8 spot price. Miners had little incentive to increase or maintain production. Miners stopped producing and production capacity plummeted.
The supply destruction was significant while demand was increasing. The spot price far exceeded the equilibrium price. After bottoming at $8 per pound in 2001, it soared to $138 in 2007.
Some uranium equities, including Paladin Energy and Cameco, to name a few, saw their stock prices increase in the thousands of percent.
See the full PDF below.
An Industry Panel
Go where they ain’t (but patience is needed in huge dollops):
HEDGE FUND ANALYST QUIZ
Your boss calls you into his office and asks if the Fed should keep raising rates? Then he asks if the Fed should lower rates? What do you tell him? There is ONLY one correct answer. To KEEP your job you must answer correctly.