Uranium Ready To Go Nuclear
Over the last several months, I’ve been pounding the table explaining to you that the time to position in the better uranium names is now.
A couple weeks ago, Cameco announced it would extend the shutdown of its McArthur River mining operations to support the uranium price.
The decision is, of course, a tough one for the company as nearly 700 people will now have to look for new jobs.
McArthur River/Key Lake is the world’s largest uranium mine/mill.
The closure could remove approximately 11% of the global uranium supply and expedite the rebalancing that was already underway.
In addition to the 19 million pounds of annual production being removed from the market, Cameco will now have to buy a significant amount of uranium in the open market to fulfill contracted commitments.
In Cameco’s most recent conference call, it outlined that the company would need to purchase between 11 and 15 million pounds over the next 18 months.
Two to four million pounds will need to be purchased this year.
The uranium spot price has responded and is now up near $26/lb. Up over 25% from the low three months ago.
Recently, I explained that:
"Hedge funds are once again making calls to take positions in uranium equities and physical uranium.
"This hasn’t gone unnoticed by the utilities, and, like the executives running majors in the precious metals markets, they’ll come in after all the smart money is positioned and fuel the next several legs higher."
I also explained that the major catalyst to look out for will be the utilities coming back to the market to lock up long-term contracts.
The last time Cameco reduced output, Kazatomprom — the largest global producer — followed suit a couple of months later.
I expect a similar scenario this time around.
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Cameco made it clear in its conference call that it would not resume production until output could be delivered into long-term contracts that provide an acceptable rate of return.
Nothing less than US$40-$45/lb. will get Cameco to restart production.
Most analysts agree that McArthur River will remain offline for several years.
The trend is clear. Uranium is going higher. So how do you make money from the trend?
I believe — and the price action thus far justifies my belief — that the two safest ways to play the trend are to buy companies with low-cost ISR projects in the U.S. and the higher-grade, well-funded juniors in the Athabasca Basin.
The uranium bear market has been a brutal one, but has done away with most marginal uranium companies, which makes it a bit easier.
You can expect the usual shenanigans that go on in the junior space.
Lithium companies suddenly finding an “exciting” uranium asset that has “blue-sky potential” in the new bull market.
Announcements like "Moose Pasture Inc. will turn into Uranium Inc" will start popping up.
Keep it simple. Look for teams that have been successful in the past. Teams that used the bear market to bring in real assets at opportunistic prices.
The bottom line is there aren’t many quality uranium vehicles in the junior space and when capital comes knocking it will always seek quality first.
There’s a number of other developments that bode well for uranium.
Developments that include Secretary of Commerce Wilbur Ross announcing that he has launched an investigation into whether the present quantity and circumstances of uranium ore and product imports into the United States threaten to impair national security.
Regardless of how the Section 232 investigation goes, in the near term, quality plays in the Athabasca Basin and low-cost, U.S.-based ISR projects are my favorite ways to gain exposure to this exciting new uranium bull market.
To your wealth,
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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