[Uranium] "It is time!" - Portfolio update
Updated: Jul 22
Q1 2022 turned into an exciting time for any uranium bull. After the EU included nuclear energy in the green taxonomy on Feb 2nd, the other big catalyst that uranium investors looked forward to was the Cameco Q4 earnings call on Feb 9th. As one of the few producers Cameco is the leader in this small sector and the statements in the earnings calls usually set sentiment for the months to come.
The call was very bullish and the equities directly started to move. There was also a general market rally in the major indexes but the relative strength of the uranium equities showed clear correlation to the sentiment shift after the Cameco call and institutions positioning more aggressively to front run any sudden moves in the uranium spot price.
In this blog post I will share my macro thoughts and also give an update on my uranium portfolio. My current uranium portfolio:
Aura Energy (ASX:AEE)
Bannerman Energy (ASX:BMN)
Deep Yellow (ASX:DYL)
Centrus Energy (NYSE:LEU)
Silex Systems (ASX:SLX)
CGN Mining (HKG:1164)
Consolidated Uranium (CVE:CUR)
Baselode Energy (CVE:FIND)
92 Energy (ASX:92E)
Fluor Corp (NYSE:FLR)
Thor Mining (ASX:THR)
Yesterday's Cameco (NYSE:CCJ) earnings call gave the green light to go mega bullish and long the uranium thesis!
For a complete recap of the earnings call I would recommend watching this excellent video on THE EARLY STAGE INVESTOR YouTube channel.
Source: THE EARLY STAGE INVESTOR
One of the main take ways for me was that CCJ contracted more pounds of uranium in January 2022 alone than in all of 2021 combined! One bearish argument against the uranium thesis has always been, that the utilities will find enough supply in the spot market and have no need to negotiate new long term contracts. This argument has finally been debunked and it is obvious that the utilities are back at the negotiation table. The uranium market has transitioned from a buyers to a sellers market, where the uranium producers/developers set the price. CCJ also mentioned that their new contracts also include components tied to the market price of uranium at delivery in the future. Telegraphing that they expect the price to go up and they don't want to be tied to the current low price. This is also important from an inflation protection standpoint, as costs to produce will likely go up. Consumer inflation (CPI) in the USA climbed 7.5% in January, its biggest increase in 40 years. PPI is even higher in some countries.
As the current long term price (see price below) is below the incentive price to bring new production online, there is only one way for the spot and long term price: North! Based on my research, the incentive price is most likely above $ 60 per pound and will be well north of $ 70 per pound going forward.
After the 700 pound brown bear from the east - Kazatomprom - made it clear a couple of weeks ago that they will show discipline and fight for a higher price, yesterday the 400 pound gorilla from the west - Cameco - made similar statements.
Over to Europe, where the EU Commission "approved a Complementary Climate Delegated Act including specific nuclear and gas energy activities in the list of economic activities covered by the EU taxonomy". This is allows for ESG funds that are currently on the sidelines to invest into uranium equities. It is important to note that the combined market cap of all publicly traded uranium companies is below $ 40 billion. Billions of dollars flowing into uranium equities will feel like a huge water dam floods pressuring through a tiny straw.
In addition, French President Emmanuel Macron "called for a "renaissance" for the French nuclear industry, saying he wanted up to 14 new reactors to power the country's transition away from fossil fuels."
My current uranium portfolio distribution can be found below. The performance was damped by the correction we were experiencing since November. When entering a new sector I usually start with a basket of stocks and then once I have a better understanding of the sector, I sell some of the companies to scale into the winners. Currently I am in exactly this phase and that is the reason I sold CanAlaska Uranium and Blue Sky Uranium to scale more into Bannerman Energy. One company that is not on the list below is EnCore Energy (CVE:EU), which I don't have in my private account but hold in my wikifolio.
Uranium is currently 22% of my equity portfolio. My first tranche of LEU was bought in Sept 2020 and from Q4 2020 onward I added the other names. I averaged up in some, for example in Bannerman Energy.
Uranium Portfolio distribution dated Feb 10th 2022 before US market open
As you will clearly see, I over weighted developers with assets in Africa. This is due to the fact that I like the risk/reward developers offer (See position on the Lassonde curve) and uranium mining friendly countries in Africa allow for higher probability of the developers going into production this cycle.
Source: Nicholas LePan
Discussion of companies
Aura is developing the TIRIS uranium project in Mauritania. In addition, there are also vanadium resources at TIRIS, plus AEE also owns the 15.1 bn pounds HÄGGÅN vanadium project in Sweden and a gold asset. AEE is a great example of taking advantage of special situations. When I discovered the stock in spring 2021, it was suspended from trading on the ASX but was still trading in London. It was already announced that they are working on relisting on the ASX and that shareholders would be eligible to receive loyalty options. I started to scale into AEE on the AIM exchange London and had my shares transferred to ASX. In Sept 2021 AEE started to trade again on the ASX and has been a great performer since then. The probability of Tiris going into production this cycle is very high and the spin out of the gold and vanadium assets offers additional value creation for shareholders.
BMN is one of my high conviction names and is developing the Etango Uranium Project in Namibia. It possesses a World class uranium mineral resource endowment of 207 Mlbs of contained U3O8. Brandon Munro is the CEO of BMN and well respected in the uranium market. He chaired the Nuclear Fuel Demand Working Group of the World Nuclear Association (WNA) for more than 4 years and as such is better connected than most uranium company CEOs. His evangelism for the nuclear industry is impressive. I would recommend watching this video from 2018, which showcases how ahead of the curve he is. Remember that in 2018 EV was not as mainstream a topic as it is today.
There are a lot of reservations among uranium investors of the high costs to bring Etango into production and the stock is priced as it will not happen. For me BMN is like a long term out of the money call option, with massive leverage at a uranium price north of $ 70. The best performers are usually those stocks many people have doubts in first and then all at once everybody wants to jump on the bandwagon.
Another well respected CEO is John Borshoff, who had a lot of success with Paladin Energy in the last uranium bullrun from 04-07. Paladin was the only company that went from explorer to producer during that time. They listed at a market cap of roughly 2M AUD and 0.10 AUD price per share and evolved into a multi billion market cap company with a share price of ~ 10.00 AUD at the peak.
DYL follow a dual-pillar growth strategy to establish a multi-platform, 5-10Mlb per annum, low-cost, tier one uranium producer. John has a slightly different approach to promoting DYL than other resources companies CEOs, which I value a lot. He is not so concerned to pump his stock to a retail audience but rather he presents at selective institutional events and also focuses on utilities. At the end of the day, I have the feeling most retail investors forget who the actual customers of uranium producers are and what they are looking for in a contract partner. Utilities value significantly sized, professionally managed projects, giving them security of supply and keeping management overhead efficient (not having to deal with a multitude of contract partners for small amounts of uranium each).
LEU is the first uranium stock I bought in Sept 2020 because I saw insider buying of a modest amount that moved the stock price dramatically. What intrigued me was the tight float and that LEU has a quasi monopoly on the US uranium enrichment market. Through my LEU research, I also learnt more about Small Modular Reactors (SMR) and later discovered the whole uranium thesis.
March 12th 2022 - Important update regarding Centrus here.
SLX is a competitor to LEU in the enrichment market but not yet in the commercial phase. I added SLX because of their JV with Cameco "Global laser Enrichment", their new process for enrichment (separating the isotopes with lasers) and the other part of their business which is a picks and shovels play on quantum computing. My investment thisis for Silex can be found here.
In my article about CGN mining from May 2021 I deep dive into the company and also explain my point of view on the uranium investments thesis at the beginning of the article.
CGN Mining is the only listed pure uranium company globally which is backed by a nuclear power group. They have their own trading house and are the sole listed pure uranium company in East Asia. From my observations in the uranium investor community, a lot of investors don't have CGN on their radar, even though they list China as main demand driver. This may be because US investors have difficulties trading on the Hong Kong Stock exchange or are afraid of regulations preventing them from trading on the HSK in the future. However, I am certain CGN will be one of the main beneficiaries of the nuclear boom in China.
CUR is following the consolidator strategy successfully applied by Mega uranium during the last bullrun. CUR acquired a full pipe of uranium projects that have been forgotten and nobody cared about when the uranium price was so low. Their recent strategic acquisition of three permitted, past-producing mines in Utah from Energy Fuels, including guaranteed access to Energy Fuels’ White Mesa Mill, makes them the perfect uranium stock to play the US market.
Baselode Energy & 92 Energy
FIND and 92E are the only uranium explorers I hold in the portfolio. Explorers usually offer no compelling risk/reward, as it is uncertain if and when they make a discovery. In the case of FIND and 92E this is not the case, as they have made a discovery in the legendary Athabasca Basin in Canada. Based on the initial drill holes this seems to be a monster deposit. Both companies own land that is right next to each other and it seems the deposit is so big that they are both working on the same deposit. Should further drill results be as positive, my assumption is that
FIND & 92E will form a JV
One company buys the other
They are acquired by a bigger company
All of the above
I had written an article about Fluor here. They are the majority owner of NuScale. Excitingly, NuScale announced plans to go public via SPAC and FLR shareholders will own 60% of the combined company. I will write an update about FLR soon, as their Q4 earnings call is scheduled for Feb 22nd.
THR is more a copper than a uranium play and I treat the uranium story as optionality. I still keep it in the list, as they hold 100% interest in uranium brownfield asset in Colorado and Utah. I doubt that they will do much with it, other than polishing it up and then selling it to a bigger company. As we are in an uranium bull market and THR has a tiny market cap of 11M USD, I expect them to rise once the spot price overshoots.
The fundamentals of the uranium thesis have never been stronger and I expect this to turn into an epic bull run lasting at least the next 2-3 years. Below please find a meme video perfectly depicting the current situation in uranium stocks. It was created by Uranium Corgi .
Click to play
Source: UrTokenCorgi on twitter
In closing, remember the total market cap of all publicly listed uranium companies is still below $ 40 billion, while Shiba Inu, a meme coin based on a meme coin, is at $ 18.2 billion. One is the fuel responsible for ~15% of worldwide electricity production and the other is a digital token with no other value than being a meme and that wastes huge amount of electricity to be produced. When will the re-rating start? -> "It is time!"
Some of the stocks mentioned above are also part of the "Picks and shovels plays" wikifolio, which is traded on the German Stock Exchange.
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Disclaimer: This blog post is purely my personal opinion and is not financial advice. Please do your own research, before taking investment decisions. I am long the companies mentioned above. No payment or other incentives were received in exchange to write this article.