It simultaneously sent uranium stocks significantly higher in percentage terms with some like UEX Energy, Energy Fuels, Laramide Resources, and International Enexco delivering a few thousand to +100,000% returns.
The commodities sector is known for the stocks within it offering leverage to the underlying price of the commodity. The uranium subsector epitomizes this.
Small World, Big Leverage
The uranium market is tiny.
Kazakhstan alone produces ~40% of global supply. It does this through Kazatomprom, its national uranium company, which listed 25% of its shares on the London Stock Exchange in 2018. Those shares had a market capitalization of US$4.75 billion in early-2021.
The next largest public pure-play is Cameco Corporation (NYSE: CCJ), which produces ~10% of annual global supply and has a market capitalization of around US$7.5 billion.
In other words, half of the world’s uranium production is represented by less than US$30 billion in market cap. In contrast, Amazon has a market capitalization of nearly US$2 trillion.
From there, the pure-plays get small very quickly. The “largest” uranium producer in the United States, for example, is Energy Fuels (NASDAQ: UUUU).
Largest is in quotes given it will only produce around 30,000 to 60,000 pounds of U3O8 this calendar year. Its market cap is around US$800 million but has mostly been below that for years.
Yet, if you were to look up the top holdings of the Global X Uranium ETF (NYSE: URA), you would see that these three companies make up three of the top five holdings.
The other two are Nexgen Energy with its world-class but undeveloped Arrow project in Saskatchewan and Denison with its large but also undeveloped Wheeler River project on the other side of the basin.
Those five companies make up over 50% of the sector ETF.
So the uranium world is very small which is why even small new inflows into the sector create such stark leverage reflected in the equities.
Over a Barrel
The biggest and most important buyers in the uranium space are the utilities. And here’s where it gets interesting.
For years, the utilities have been able to lock up uranium supplies at depressed prices, signing long-term contracts that guaranteed the biggest buyer stayed out of the market for years.
That’s about to change. And the combination of supply cuts from the highest-margin producers and utilities coming back into the market might create the greatest uranium bull market anyone has ever seen.
You see, the utility company's price is secondary to securing supply. That’s because the price they pay for uranium makes up a very small portion of the total cost of operating a nuclear reactor.
Uranium prices need to be north of $50 per pound. That’s the incentive price to build a new uranium mine in the world. And it goes up to $75. No developer can bring a new uranium mine at $32 uranium. We’re guaranteed to see higher contract prices.
That’s why uranium bull markets are so powerful and why the profits can truly be life-changing. Whether they pay $25 per pound or $150 per pound… they HAVE TO BUY!
With nuclear power providing some 15% of global baseload — and clean — electricity… either the utilities buy uranium at higher prices… or the lights go out!
When you look at the levels of uncovered reactor requirements starting next year and the year after that... every year, it gets larger and larger and larger. The utilities' last major contracting cycle was in 2010.
Not only is the biggest buyer about to rush back into the market… but governments that just years ago vowed to move away from nuclear energy are now realizing that there isn’t a cleaner, safer, more economic option in the world.
Japan, China, India, South Korea, and even the US are now fully onboard with a cleaner energy future that will require uranium.
Then, there’s the retail speculator who, until now, hasn’t had a viable vehicle to buy uranium pounds with the press of a button or by placing a phone call.
That’s about to change. Sprott is basically launching a uranium ETF by taking over Uranium Participation Corp (TSX: U)(OTC: URPTF).
Sprott Asset Management taking over management of Uranium Participation Corp. is a big deal. We believe Sprott's 200,000-plus investors will look at this as a way to directly purchase physical pounds without having to take delivery, which Sprott will do for them.
They’ve done it with gold. They’ve done it with silver. And now they’re about to do it with uranium.
Although the gains in the uranium spot price will be incredible... the best juniors will make those gains look paltry in comparison.
In the precious metals space, it is the royalty group of stocks that outperformed in the last bull market for all of the reasons that are now becoming common knowledge:
No commodity risk
No cost risk
But uranium investors had no such option the last go-round, leaving them over a barrel to invest via the model that has performed so well with precious metals.
The entry of Uranium Royalty Corp. into the market changes that.