The uranium thesis was there for a long time, now there are catalysts and the potential for reflexivity
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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
degeneratesmembers (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)
- r/UraniumSqueeze is now at 14.8k
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…