I'm Adding This To My Portfolio In The Coming Months

Written by Gerardo Del Real
Posted August 14, 2017 at 2:22PM

Many — including Rick Rule — have described the bull market in uranium from 2001-2006 as the most explosive bull market they’ve ever seen.

In 1999 Uranium had a price of $8 a pound, by 2006 it was $135 a pound. The best performer of that bull market was a company called Paladin Uranium, which bottomed at 1 penny per share and later hit a high of 10 dollars per share.

Many have also described the bear market of the past six years as one of the most brutal bear markets for uranium.

For those who have been early on when the next uranium bull market would start it’s been an exercise in watching paint dry.

Understanding the volatility and cyclicality of the resource sector can lead to incredible profits. Getting it wrong can make your money disappear very quickly.

Understanding the catalysts helps narrow down the timeline. Picking the right teams — and there are only a few — will maximize the profits.

While it’s impossible to pick exactly when the uranium market will turn as a whole, the risk-reward proposition is compelling enough to begin to look at quality teams that have proven track records of delivering for shareholders.

Let’s start with a brief overview of the catalysts that signal a new uranium bull market is near.

The disaster in Fukushima in March of 2011 caused 54 reactors — 13% of world demand — to go offline.

Some inventory from Japan wound up hitting the spot market, putting further pressure on the uranium price.

We’re starting to see Japanese reactors come online. Slowly but surely. Five Japanese reactors have been restarted under new safety regulations and another seven are being prepared for restart.

Japan's Institute of Energy Economics has projected the reopening of 19 reactors by March 2018.

Hopefully you get the picture. Japan is returning to nuclear energy.

We’re also seeing Japan strengthen relations with India as the Indo-Japan civil nuclear deal signed in November of 2016 takes hold. The deal would enable Japan to export nuclear power plant technology as well as provide finance for nuclear power plants in India.

The Economic Times reports that Japan would also assist India in nuclear waste management and could undertake joint manufacture of nuclear power plant components under the Make in India initiative.

Clearly, Japan understands the importance of nuclear energy and the restart of more reactors is only a matter of time.

The International Energy Agency estimates that the global total cost of production is approximately US$60 a pound on a global basis.

Kazakhstan is the number-one producer of uranium in the world at over 40% market share. A little over a decade ago that figure stood at approximately 9%.

Kazatomprom, the state-owned uranium miner with well over 30% share, is the number-one producer of uranium.

Kazatomprom will go public in 2018. For years it’s been gaining market share by flooding the market.

However, I don’t know any company going public that doesn’t look to strengthen its investment thesis.

The easiest way to do so will be by bolstering up the cash flow and it will do that by curtailing the amount of uranium it’s providing the market, which will send prices higher.

In January, it cut production by 10%. I don’t believe that will be the last cut.

Kazatomprom’s soon-to-be-established Swiss marketing arm will allow Kazakhstan to become a swing seller. Meaning it can choose when it wants to sell and to whom it wants to sell.

That has not been the case and has been partly to blame for the beating the uranium price has taken. The reason this hasn’t been the case is because the transfer laws in place in Kazakhstan mandate that a resource mined must be sold at a “verifiable” public price which translates into the spot market.

This is important. The subsidiary is being set up in Switzerland, which will allow it to stockpile uranium that would otherwise have to be sold into the spot market.

Mike Alkin has been among the first to really drive that point home. You can watch a very thorough presentation on the potential new bull uranium market here.

Throw in the Department of Energy’s recent directive to reduce the amount of inventory sold into the market by 50% and the geopolitical uncertainty that will become more and more commonplace and it is clear is that the risk-reward proposition is compelling.

The biggest risk is getting the timing right and defining that timeline will be critical to a successful speculation.

You can mitigate the time-risk by making sure you are investing in proven management teams in good jurisdictions.

Luckily there’s not very many, which makes my job a whole lot easier.

I’ll be adding several uranium names over the next few months in anticipation of what I see shaping up as the next bull resource market.

For some, like copper, lithium, and zinc, that bull market is well on its way. For others, the writing is on the wall.

That market will include gold, silver, lead, zinc, copper, uranium, lithium, and high-purity graphite.

In the coming months, I plan on adding several uranium companies and possibly a zinc company to the portfolio.

Several people, a lot smarter than me, have been early on when the next uranium bull would really take off. We saw a preview of it earlier this year.

I believe we’re months away and it’s time to start positioning aggressively.

To your wealth,

gerardo-sig

Gerardo Del Real
Editor, Junior Mining Monthly and Junior Mining Trader.

For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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