How I learned to stop worrying and love Uranium
Why we are bullish on Uranium
Different format for the newsletter today…a Monday special on everyone’s favourite radioactive substance, uranium.
Why we are bullish on uranium
Uranium — we have been speaking to some of our clients about this for a while, but this is the first time we’ve written to a wider audience our thoughts (we don’t consider ourselves macro specialists!) — long story short, uranium is a classic supply/demand situation. There’s more demand than there is supply.
Uranium demand for 2024 looks like this:
Primary supply of ~150 million pounds, and secondary supply of ~10 million pounds, for total supply of 160 million pounds
Primary demand of ~190 million pounds, initial fuel loadings of ~15 million pounds, and overfeeding will require an additional 5 million pounds for total demand of 210 million pounds.
That’s a deficit of ~50 million pounds.
So what? you might say — they can just mine more uranium. They can, but opening a new mine takes time, a lot of regulation, etc etc. It’s a fairly inelastic thing, and you can’t just ramp up production at an existing mine easily either. In November, the Saskatchewan provincial government approved a new mine for NextGen — the deposit should provide about 20mn pounds of uranium. It likely won’t open until 2028. It’s easy to see why uranium stocks will be oversubscribed for the new few years until mines like NextGen’s are operational. Or, another example — the Sprott Physical Uranium ETF, which holds (you guessed it) physical uranium — currently has an unwanted $60mn in cash on its balance sheet because it can’t buy enough uranium.
Our guess is that uranium continues to go up in price, and potentially end in a ‘bubble’ as it did in 2007.
There are a couple of thematics which we think help our cause. The first is that uranium is losing its rap as the “bad boy” of energy.
Note the WSJ story below from earlier this year…uranium is as American as apple pie, Miss America, and daisy dukes…
The biggest thematic, of course, is rising energy demand globally. The world’s nuclear plants simply require more supply than is currently available. There are dwindling secondary stocks, hence why the physical uranium ETF has so much cash on hand. It’s a tale as old as time — demand outstrips supply. The other thing worth noting is that nuclear plants don’t tend to hedge, or buy futures, or hold excess stock — they simply pay spot price of uranium when-and-where they need it.
Uranium inventory over time (source: G&R)
We suggest buying URNM, an ETF which owns a number of uranium mines and some physical uranium. We don’t have any special insight into the best mine. All we know is demand outstrips supply. It’s a very simple insight, but a powerful one, we think. Obviously, there is a way to play this with LEAPs as well…not financial advice…we only recommend buying the ETF…you could also buy the physical uranium ETF trust (SRUUF) to have access to the underlying asset itself.