Quicky on Uranium / Kazatomprom

The uranium thesis was there for a long time, now there are catalysts and the potential for reflexivity

>>> Please read the Disclaimer. Nothing here is investment advice! <<<

The fundamental case for uranium isn’t that new. It exists for quite some time within FinTwit, but now, important market dynamics might have changed the situation recently. Since I have nothing material to add, nor did I do much research on my own, I just list a few main points

This post might not provide much news for you. But it creates a written record (besides my handwritten notebook — helps to tackle our biases) to look at if the case did (not) work out.

  • annual demand is outstripping supply
    • in non-western countries, more reactors will come online
    • it usually does not pass conventional ESG screenings, nonetheless it has its place
  • supply-demand gap is filled
    • by inventories (utilities) and
    • other supply, i.e. from states
  • financial investors change market dynamics
    • Sprott Physical Uranium Trust buys physical uranium
    • as long as it trades on a premium to NAV, it sells more shares
    • and creates more buying pressure
  • FinTwit and reddit might add the fuel (pun intended) needed for the case to work
    • r/UraniumSqueeze is now at 14.8k degenerates members (up from 11.0k at Sept 8 or +35% in a week)
      • updates: 16.3k (24/9), 16.2k (23/9), 16.0k (21/9), 15.9k (20/9), 15.4k (17/9)
    • providing the potential for reflexivity, and a massive social-media induced rally (think AMC, GME)

Recommended sources: YAVC video, AIC blog, VS blog. Unfortunately, I do not find any older material I read some months ago. Searching my inbox brings up an email from Deep Value Investments from March 2021 (but not the complete thesis).

I am biased. The simple fundamental thesis is likely right (I guess) but some other factors might affect me. Probably, I liked the uranium case to a certain extend because I think it was and still is a terrible mistake of German politics to dismiss nuclear energy if one believes in man-made climate change and wants to tackle it effectively in the real world

  • nuclear energy has its risk (Chernobyl, Fukushima)
    • this fact is hardly deniable, but
    • one can argue of the ‘risk category’ – more exestential than climate change?
  • technology did not stand still over the last decades
    • Bill Gates was involved in a promising project
    • before US/China affairs got messy, they were on a good path to work on it toghether (thank you politics again?)
  • as a singel developed country, presumable with high engineering know-how (Germany) it does not make that much sense to phase out nuclear energy
    • besides a potential easy win for politicians, especially if
    • our friendly European neighbours’ reactors do not disappear from right behing our borders only because we switch ours off. Arguably their reactors are in a much worse condition then ours.
    • As a reaction to German developments, Siemens (engineering know-how) pulled its nuclear utility construction business
    • guess what, nuclear reactors are now built by Russian/Chinese/… companies that arguably care less about quality and safety.
    • (in the real world) other countries’ reactors get built by some one (not Siemens)

I placed the wrong bet — if you want to look at it that way — when buying a small position (2.5%) in Kazatomprom (KAP LI) on Sept 8, 2021. KAP is the biggest uranium producer globally (link) sporting a market cap of several $bn. KAP is profitable and pays a dividend. I knew KAP from taking a quick look at the company some months ago. KAP is domiciled in Kazakhstan – a rather exotic country for investors. Maybe known by via Kapsi. Due to its profitability and scale, KAP is a rather defensive play. This means, if the thesis on rising uranium prices proves to be successful, one would likely realize much higher profits with a bunch of junior minders (there are a few!) or developers, or even more so buying the marginal producers becoming profitable at much higher prices.

I cater to a defensive investing style with regard to my portfolio construction and I also prefer to buy defensive investments. Thus, I went with Kazatomprom, which I might even hold longer-term which I would probably not want to do with some junior…

Update Sept 24, 2021: members of r/UraniumSqueeze did not explode so far, neither did the prices of Kazatomprom (KAP LI) or U.NN. KAP’s price did peak at Sept 15 ($43), but came back down to $35 twice since (20th and 24th). Since I am likely afraid of looking/feeling like an idiot who pursued investments he usually does not do, during the last few days I

  • looked at the price constantly (poor use of time) and
  • thought about placing a limit sell order for ensuring a positive return
  • searched for updates on the uranium(squeeze) story
  • rued not to sell at $43

A tiny profit was realized by this trade. I bought on Sept 8 for €28.40 per share (incl. all costs) and sold on Sept 24 (€29.33) for an after-tax return of 3.27% and an even worse RoT (return on my time) 😀
Hopefully good for a laugh: This trade’s annualized IRR is just huuuge, further i) it is totally meaningless and ii) you can be certain to see it everywhere on my blogs page if I am ever to go to introduce a paid tier 😉

It is hard to know if it was a good bet to take on Sept 8th…

2 thoughts on “Quicky on Uranium / Kazatomprom

  1. I also looked at “investing” in uranium and didn’t, which was probably a mistake. Anyway, here are some of my thoughts:
    1. Kazatomprom is one of the best choices IMO, it’s one of a few stocks whose valuation wasn’t crazy yet (when I looked at it a few months ago). Physical uranium was also attractive (no leverage but reasonable valuation).
    2. The critical issue that doesn’t get enough attention IMO is the unknown size of the uranium inventories, which means nobody knows when these will be drawn down sufficiently for prices to rise … by the time NexGen floods the market and crashes uranium prices (2026?). Unless Sprott buys a LOT of uranium… which seems to be happening right now, judging by uranium prices. So for me it was really speculation on the impact of Sprott, which is why I didn’t participate. Although I probably should have participated, with physical at ~$33 there was little or no downside. Oh well.

    Liked by 1 person

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