Nuclear energy is carbon neutral, powers 1 in 5 homes in America, and is the cheapest operating source of baseload power in America.
After 10 years in a brutal bear market, uranium prices have roared to 6-year highs.
Bloomberg headlines are rolling and YouTube and Twitter algos are blasting uranium stories on everyone’s feeds. Even WallStreetBets (of AMC and GameStop fame) is in on the action, having alerted their members.
Here’s the deal, uranium stocks are at multi-year highs.
So pop quiz: What has changed in the uranium market to jumpstart this frenzy?
- Are utilities finally waking up and buying physical uranium in the market again?
- Are nuclear reactors finally going to get the credit for being the only net-zero baseload power option?
- Or is someone trying to corner the market?
If you answered C, you’re right.
But I’ll add that it’s C with a radioactive twist.
I’ll explain all the details from the perspective of the largest financier of uranium from 2017-2019. And from someone with a Rolodex of the largest players in the uranium sector, globally.
The New Player in Town: Cornering The Uranium Market
The company formerly known as Uranium Participation Corp was renamed and repurposed as an investment trust.
Its name today is the Sprott Physical Uranium Trust and it has now become the largest buyer of physical uranium.
How are they doing it?
It’s a technique called the ATM or At The Market financing.
- An At The Market (ATM) facility allows the company to conduct financings on demand. This capital then is used to buy up physical uranium in the spot market.
Below is a chart which shows the cumulative ATM financing during the last ten days of August via the Sprott ATM facility.
The spot market price traded at $40.25 per pound earlier this week. These levels haven’t been seen in 6 years. Investors are taking notice and it’s become the hottest commodity and dominating the news cycle.
Going back to the ATM money available to Sprott … all the cash raised is then used to buy uranium in the spot market.
The relationship is very clear…
Uranium Stocks are Spiking Higher
I don’t think there is a single uranium stock that has not appreciated in the last 2 weeks.
Out of the 50+ uranium names I follow, none have negative returns since August 2021.
So, What Comes Next?
The initial size of the Sprott ATM is CAD$300 million.
This means they can issue up to CAD$300 million worth of the trust’s stock, which in turn represents CAD$300 million of physical uranium buying power.
Sprott has tapped into $230M thus far of the $300M facility.
- Given the rapid success, my guess is the team at Sprott will likely try to size up the ATM to CAD$500M or the maximum amount allowable without a shareholder meeting (time is of the essence). This could mean hundreds of millions of dollars worth of uranium buying.
- But, how long will it take for Sprott to get approvals from the regulators to reload their ATM financing?
- In addition, for Sprott to go “Prime Time”—they will need to list on a major US exchange (something I’ve been talking about for years). And I’ll bet my old partner, Rick Rule (who is the brainchild of this at Sprott) that a major U.S. Listing doesn’t happen before U.S. Thanksgiving. Regardless, I applaud the Sprott team for their efforts, strategy, and execution—well done!
It’s a significant tailwind for the uranium market.
The goal is to get the uranium trust listed in the US where it can go after the really big money. The catch there is getting listed is not a flip of the switch, this will take months to sort out.
Whenever you have lawyers involved, you can expect a process of over-promise, overcharge, and under-deliver.
Expect time delays, as it’s part of the training lawyers get during their articling (Billing Success 101). To all the overzealous lawyers, I’m kidding, but seriously, your industry needs a serious wakeup.
In the meantime…
Options Watch: The YOLO traders are coming
Known as WallStreetBets on Reddit, this group of traders infamously created chaos in the markets earlier this year with their Gamestop (GME) and AMC Inc (AMC) short squeezes.
It brought hedge funds to their knees.
It looks like some of them have begun to buy deep out of the money call options.
Call options for September 17th which expire in 10 days with an exercise price of $35 now have an Open Interest of 139,163 contracts.
- Over 50,000 contracts were purchased in the past few days. Making it the largest open interest of any Cameco option contract.
Each option contract represents the right to buy 100 shares of Cameco at $35 per share. Contracts were bought for pennies, rendering it the exact type of trade the WSB crew makes.
Someone has to sell these traders the call options, banks or option dealers will “hedge” their risk through buying Cameco stock in the open market.
Once this WSB engine gets going it is hard to stop, as proved in GME and AMC.
The one Achilles heel of the WSB group is most trade on retail platforms which won’t have access to the Canadian exchanges which is where most uranium stocks trade.
In addition, only a few uranium stocks have options available for the YOLO trade.
How High Can Uranium Prices Go?
The unique part of the uranium market is that demand is virtually inelastic.
Utility companies need to buy uranium to fuel their reactors, regardless of cost.
- Whether uranium is $45 per pound or $450 per pound the cost per kilowatt-hour difference is a rounding error compared to a similar price pop in natural gas or coal.
- For example, a 1000% increase in uranium price will result in a 24% increase in electricity generation from a nuclear reactor.
A similar 1000% increase in natural gas will result in a 720% increase in electricity generation on average for the utility.
The Utilities know this, and so do you now. Team Sprott and WallStreetBets Crew, feel free to quote our math.
Now, uranium has seen some incredible swings over the last 90+ years.
Both major bull markets in uranium saw prices for yellowcake skyrocket by over 10-fold.
You would think the mega booms and busts would attract enormous amounts of capital to the uranium market. Not to mention the fact that close to 20% of America’s electricity comes from uranium.
But in fact, it’s nearly the opposite.
The uranium market is tiny. It’s a mere fraction of its precious metal or base metal miner peer groups and is dwarfed by its older cousin oil and gas.
Enter The Passive Funds
In the last Uranium cycles, the Passive funds (which were a fraction of the amount today) had no way to play the general uranium price with Liquidity.
The uranium ETF option was a joke and wasn’t a true proxy to the uranium price, and didn’t have the liquidity required to meet the passive funds’ criteria.
The miners were debt-heavy and not an ideal option.
But Sprott provides a platform for Passive funds.
And today, Passive funds exceed the amount of capital managed than Active Funds.
That means, algos and computers manage the buying and selling. And when those algos start buying, watch out.
Uranium Returns Can Be Explosive
When uranium heats up the moves in uranium stocks become extremely explosive because there are so few ways to play the space.
In the bull run from January 2004 through June 2007, many uranium stocks soared hundreds of percent.
Cameco, the world’s largest publicly traded producer went up over 300%. While smaller speculative plays soared thousands of percent.
Year to date, myself and subscribers have been strategically rotating in and out of uranium names.
We’ve locked in several good “base hits” and are sitting on a year-to-date gain of over 150% on our largest position.
The uranium market is one of the most hated and loved sectors out there. ’ve made my share of thousand percent gainers.
In fact…
- One of the uranium stocks I and my subscribers to Katusa’s Resource Opportunities had, was up as much as 860% here in 2021.
And we got those shares FOR FREE.
“Impossible” you might think.
But hundreds of people had the same opportunity with this uranium stock (and even a copper stock that’s gone up over 1000% they got for free, too!).
Here’s a sample of what a few of our subscribers wrote to us after their winning uranium profits…
From Ken M.,
“Very pleased with this one and your overall service. Up 250% to date!!
And Bobby M.,
“I believe the bull market in Uranium is still in its early innings. Subscribing to Katusa Research…has been one of the best financial decisions I ever made.”
And Kevin B.,
“I got a little squeamish when this stock had tripled, and so I sold enough to cover my initial cost (a free ride) and kept the rest. I did this just before you sent your subscriber alert about the stock…next time, I might wait a little longer before I lose my nerve and start to sell… It paid for my subscription, and then some!”
And from Calvin W.,
“Thank you! Not only because you help me make a lot of money, most importantly, Marin and every one of you set up a role model for us – what a decent person should be. It’s truly my honor to (be) a member of the Katusa Research family.”
I’ve been to all the major projects around the world and have contacts at the highest levels of the market.
I am the only resource analyst and investor who was asked by the ‘World Nuclear Fuel Market’ to give the keynote speech at the Paris 2015 Conference, where the utilities meet with the producers and traders to lock in their purchases.
While on stage, my joke was that the conference reminded me of a high school dance…
But rather than the boys on one side of the hall and the girls on the other side, we had the Americans on one side and the Former Soviet Union members on the other. The Russians found my comment funny.
Previously, I laid out the absolute worst case for uranium and proceeded to make significant bets and investments accordingly.
We even did an interview with an executive of the world’s largest uranium producer and a major player in the uranium markets (who never does interviews with people in the west) – back when NO ONE was talking about uranium.
You can watch it right here, for free.
Our patience and bets are being rewarded in real-time.
Because this squeeze is unlike any other I’ve seen in my career.
Fasten your seat belts.
And thank you to all the alligators for believing in me, you deserve every profit you will make, well done, and stay safe.
Marin
P.S. if you’re not a member of Katusa’s Resource Opportunities, click here to learn all about what we do.
