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The Uranium Thesis: Have your cake (but don’t eat it)

**The Uranium Thesis:** **Have your cake (But don’t eat it)**

**This is my first big write up so be gentle.**

As I am sure many of you are aware, uranium is a popular topic with some people very big on uranium. You might have even heard people talk about the “uranium squeeze”. I’m writing this DD to explain the uranium thesis and why I am very bullish on uranium.

**NOTE:** **This is not a short term play.** **This is an investment and could taker months or even years (I know crazy, who waits that long for money?)** **If you’re looking for a way to become rich over night this isn’t it.** **Go buy some SPY FDs or something and call me when you end up behind Wendy’s.**

**Uranium, why should I care?**

Uranium is used for nuclear energy. Specifically, it is used by nuclear power plants to create electricity. Now I know what you’re thinking, what about all that radiation? Radiation leaking and contamination are actually not very common even though movies act like it is. Plants are designed with this in mind and ways to prevent it. When people think of nuclear they think of Chernobyl, just know that was a case where a plant had a meltdown but the plant itself was not built to safety standards. That’s why that example was so bad. Modern plants are not built like that and honestly it should have never been allowed to operate in the state it was in. The other major one being Fukushima in Japan. While people know radiation leaked, there have been no reported deaths or cases of radiation sickness from that accident. In fact, the radiation has been contained and kept in water for treatment. Japan is even planning to release the treated water into the ocean in the next 2 years. So outside of these two major cases, nuclear energy really hasn’t had that sci fi movie effect of melting people or turning ants into giant city destroying monsters.

Now that we got past the scary part let’s get into the benefits of nuclear energy. For one it is carbon neutral. A coal burning plant will release as much carbon in 1 hour as a nuclear plant will release in its entire lifetime of operation. Not only is it a green energy source but it is vastly more efficient than other forms of green energy. To get the energy of a single nuclear power plant you would need 430 wind turbines or 3 million solar panels and no that’s not a typo. Nuclear plants require 1 square mile of space while a wind farm needs 360 times more space and solar photovoltaic plant requires 75 times more space. It’s more efficient and takes up far less space than renewable energy sources. This has a large impact on pricing as well. When Japan shut down their plants in response to the Fukushima meltdown their electricity costs went from $.17/wk hour to $1/kw hour. That’s more than 5 times the cost. Similar price increases have been seen in Germany who also shut down many of their plants. In fact, Japan is now planning to reopen their nuclear facilities to deal with this electrical energy issue. Finally, unlike renewable energy sources nuclear plants can operate 24 hours a day 7 days a week, have low maintenance needs and only need to be refueled every 1.5 to 2 years.

**Nuclear energy and the future**

Nuclear energy is already a major source of electricity for many nations. The US gets 20% of its energy from nuclear plants and nuclear accounts for 50% of the carbon-free electricity produced. Know how states are trying to go carbon neutral and want people driving electric cars? Well if our cars go electric they’re going to need a lot more energy production to maintain that and nuclear is the clear winner. The US has already approved two new power plants being built in Georgia expected to be up and running in 2021-2022. There is also bipartisan support for increasing the US nuclear capacity to meet future energy needs. France had pledged to decommission half their nuclear reactors, but after seeing the energy issues of Japan and Germany they have decided not to do this anymore. Then there’s China. China is looking to go carbon neutral to clean up their air and nuclear is their answer. They currently have 17 new nuclear reactors under construction. In total, the world has 50 new nuclear reactors currently under construction including Russia, India and the United Arab Emirates to name a few. As the world turns to nuclear energy they’re going to need more uranium to keep these plants going.

**How do plants get uranium?**

As stated before, nuclear plants need uranium to run. This uranium has to be mined and processed before it can be used at a plant. In addition, plants are specific so once the uranium has been treated it is only able to be used at that one plant. From mining to processing it takes over a year for the uranium to be ready for a plant to use. This means they need to have at least 2 years of stored uranium on hand at any given time. Remember that Fukushima meltdown? Well when Japan shut down their plants they had a lot of uranium on hand, about 100 million pounds of unprocessed uranium. So, they sold it to the market. This added a lot of uranium at once (Japan in 2011 accounted for 10% of the worlds nuclear energy) driving the price down. Operating a uranium mine isn’t cheap. Take Cameco Corp (CCJ). They are the world’s largest uranium mining company. They also have one of the cheapest uranium mines to run. For them to be profitable, they need to get at least $30/pound of uranium. Take a look at this graph below showing the price of uranium/pound.

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https://preview.redd.it/lfae17a9uz871.png?width=624&format=png&auto=webp&s=6b00ce3a4714a427d4b2715b88a633def0c3a663

Uranium today sells for just over $32/pound. That’s barely enough to be profitable for Cameco Corp, and they have one of the most efficient mines out there. For many mining companies, uranium mining needs to be closer to $40/pound to be profitable. The way uranium mining works is they sign contracts, usually 10 years long, with power companies at a set price. Take a look at the same graph but now showing the last 10 years.

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https://preview.redd.it/lgb094sauz871.png?width=624&format=png&auto=webp&s=06ddb7ecb0fb9e97cb589119ac6a82a429b08023

What you’ll notice is starting around 2016 the price of uranium dropped to a point where it wasn’t profitable for mines to operate. So many of them didn’t sign new contracts and stopped production. Not only is production halted but these mines can’t just be activated right away. It takes time. If a mine were to reopen today, it would take 18-24 months for their uranium to be ready to be used at a plant.

There is a second way for plants to get their uranium. This is through the secondary market. These private groups have uranium they have bought up and are reselling to plants for their uranium needs. Many mining companies will also buy this uranium to make up for deficits in production for their contracts. However, this supply of secondary uranium appears to be running out. Take Denison Mines (DNN). They went to try and buy uranium on the secondary market and in order to fill their order they had to use 17 different suppliers. Within this secondary market is also that 100 million pounds that Japan sold off when they shut down their facilities in 2011. However, experts expect the Japan supply will be fully used up by the end of this year. It is unclear how much uranium is left in the secondary market, but experts predict between 2-3 years of uranium are left.

**Uranium prices and the future**

So we have established two key things. Uranium prices are currently too low for most mines to operate and uranium stocks are starting to run out. So what does this mean? Well simply put, it’s supply and demand. As the supply drops the demand for uranium will go up. As it goes up the prices will also go up. Experts predict that Uranium will have to get to around $50-60/ pound before most mines will be willing to sign new contracts. That’s double the current price. Now remember, these are 10 year contracts. This is where the price increase for uranium will come from. Also remember, these companies are not running the majority of their mines or for some of them any of them. So they will go to full capacity and make double the current market amount per pound. These two things mean $$$ and stock go up! Now that $50-60 price is not set in stone, it could very well be higher as power companies bid against each other and the longer power companies let the supply drain the higher that price will be. In the power industry, many of them are in denial stating there is no current uranium shortage, but it is estimated the US only has 2-3 years of stored uranium left and US companies 1-2 years worth. These companies usually never let their supply drop below 2 years because it takes a reopened mine 18-24 months to get them that usable uranium. So the longer they wait the more they will have to pay as they start negotiating contracts against each other to fill their needs.

**The big uranium squeeze**

Yes I know I said the S word. Don’t start jumping around thinking you’re about to buy all the uranium stocks and cause them to rocket. That’s not what it means. Remember those secondary markets I talked about before? Many are private buyers and in particular hedge funds. Yes those hedge funds. But no don’t start booing, in this case they’re our friends. Now put the torches down and let me explain. When hedge funds start getting the feeling uranium supply is dropping they start buying up uranium. And they buy a lot of it. They try to take over the secondary market supply. Why? Because then when the power companies come to them to buy uranium they jack the prices up and squeeze them. Yes, the hedge funds cause a squeeze and this squeeze can cause uranium prices to soar. Take a look at that chart again.

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https://preview.redd.it/o0puqojbuz871.png?width=624&format=png&auto=webp&s=adfd25c193b21f50f64b4725ff5f5c6460eed6a3

See that giant surge in 2007? Yep, that was a uranium squeeze caused by hedge funds. And when the price of the secondary market soars those mining contracts soar to match it. Many mining companies in 2007 signed big fat contracts of $100/pound of uranium. This is the gold mine, where we go from making some money to having to decide which color Porsche we will be buying. Now, this is not a guarantee and most experts actually think it won’t happen as most power companies remember 2007 very well and don’t want that again. But, those same power companies are also in denial about the uranium supply and hedge funds have already started putting a low of money into uranium. But even if this doesn’t happen, the stocks will still go up when uranium hits that $50-60/pound price range. This would just be icing on the cake.

**The Bear Case**

Yes, yes I know, we hate bears. But I have to include it. There are three major bear cases against nuclear.

The first, and probably most obvious is the threat of another major meltdown. If this were to happen the world could turn from nuclear and seek different energy sources. Public opinion does play into the creation of new nuclear plants and we saw how 2011’s Fukushima meltdown caused Japan and Germany to turn from nuclear to new energy sources.

Second, there is a chance there are uranium sources out there that are not accounted for. Unknown suppliers could come out and show that uranium stocks are in fact not low. While this would cause an issue in the short term, it still wouldn’t fix the fact that eventually they would still run out. It’s not like people can just come up with unlimited uranium without mining it.

The last one is if China decides to change their plans. While not likely, they could announce tomorrow they’re changing from nuclear to a different energy source. This would cause issues as it would remove a major nuclear nation. But again, it’s not likely with 17 facilities already under construction.

**Conclusion**

There you have it, the uranium stock piles are going down, not enough is being mined to maintain them and at some point the price is going to go up and when it does you’re going to want to own shares in uranium. As I said this is a long play and you should be prepared to have your money sit for 2-3 years, maybe even more. But the stage is set and at some point Uranium is going to go up. Just make sure you’re in before prices get out of reach.

**TLDR:** Uranium supply is dropping and mining is limited because the price is low. Low supply will cause a higher demand and we know supply plus demand = money!

**Final Note:** I didn’t mention any company suggestions because I felt this DD was already long enough. If people want I can make a follow-up where I list out the companies and some pros and cons.

**Positions:**

**DNN:** **200 shares**

**UUUU:** **2 $6 7/16 puts sold.** **Will become 200 shares soon but I’m playing theta with this one because it’s been bouncing around a bit.**

**I will also be adding to my shares over time.**

What do you think?

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23 Comments

  1. My bear case is human stupidity. Mainly all the political bullshit with the energy sector right now. Nuclear power should be used wayyyyyy more than it currently is but because it’s not a fun thing to push politically and everyone is an idiot and scared of it we haven’t seen it take over like it should.

    I myself am long on nuclear as it’s about the cleanest power source we have that can actually meant there power generation needed.

    We’ve already seen it in Texas and New York that the ever growing populations is causing a massive surge in energy usage and our current grids just can’t keep up with it.

  2. I’ve spent a lot of time on uranium, starting after Fukushima. It’s super long lead time to bring on new capacity so upcycles can run once excess inventory is worked down. To make sure you don’t have basis risk – buying $CCJ is a near sure fire way to make sure you participate in the macro thesis without getting tripped up in any fraudy junior miners

  3. I’m a huge supporter of nuclear, but both OP’s mentioned positions are <1bn market caps. Usually those are frowned upon here

    Edit: $CCJ is over 1bn, it’s just not mentioned as a holding

  4. Best god damn play out there. They funny thing is WSB could not only corner the fucking market with a bazooka to the face if only a small amount would allocate funds to sprott when they come online. It tooke dension SIXTEEN purchases for a measily 2.5mlbs and they had to pay a premium to get it right now. With sprotts atm function on NYSE when they bid everyday with no one actually certain on how much uranium thats actually available this could blow tf up. Imagine if 5% of WSB buys sprott? Or better yet imagine when people start chasing when spot reaches 60$ and the market is razor thin? WSB could own this entire teeny tiny sector if they actually wanted to and there is a LOT more money to be made here than on meme stocks. No manipulation, no hedgies fucking you over when your stock is about to short squeeze, hedgies actually on your side buying uranium to corner the market, plain simple supply/demand story on a life or death important commodity. I hope you fucking retards read up on this and can keep a position more than 1 month at a time and stomach some damn volatility beacause you cant have this assymetry without it. The upside is 10x+ whilst the downside is 50%. I’ll take that bet every single day of my life even if the chance of winning is 10% (it’s a lot higher on this play tbh, I think about 60-70% with recent news)

    Position: 1m in 16 different stocks, 100% allocated.

  5. Lol I was thinking the same… Natural uranium is very rare . Probably a good investment of you find the correct company. DM me if you want I was thinking of doing this maybe Monday.. probably with call options

  6. I’ve been wanting to jump in Uranium plays ever since our cold weather clusterfuck in February here in Texas. I’ve been following the below tickers.
    $UUUU
    $LTBR
    $URG
    $URNM

  7. Disagree with OP mostly. OECD puts out a report every two years and according to their latest [report](https://www.oecd-nea.org/upload/docs/application/pdf/2020-12/7555_uranium_-_resources_production_and_demand_2020__web.pdf) not only is there enough uranium for current usage but enough for significant growth in nuclear capacity. It also states that plants have increased their stock due to depressed prices. While some of the extraction and production have been curtailed this capacity can come online quite quickly should favourable market conditions arise. I’m not going to paraphrase all 483 pages but if you want more information the first 16 pages should do. The conditions OP is talking about are possible but on the extreme high end of estimates.

  8. Not a bad DD but I don’t think I agree with the conclusion. Yes nuclear fission power plants will have to become a thing in the future but I don’t think uranium will be used.

    The world hates nuclear power because oOo MaH mElTdOwN. For nuclear power to become a thing again governments, activist, and companies involved have to convince the world that nuc power is safe. And that is not happening with uranium based reactors with designs from the 60s. Newer designs are focused on alternatives such as thorium. So I am not quite convinced.

    Thoughts?

  9. I would be careful with DNN. The entire value is based on being able to build Wheeler River. Over the past few years it seems that the regulators and voters in Canada have decided that we don’t want to build any more resource or infrastructure projects anymore. Wheeler River is still pretty early in permitting. Lots can go wrong.

    And CCJ needs to spend lots of money to restart their idled capacity.

    If there was a way to invest in those sweet, sweet Kazakstan uranium mines at the bottom of the cost curve, that would be more interesting.

  10. The primary problem with uranium is that all mined uranium has a natural level of abundance that is unusable.

    Uranium has to be enriched in order to be usable to generate power. Enrichment is a tightly controlled process that [will get you bombed if you don’t get permission](https://en.wikipedia.org/wiki/Operation_Outside_the_Box).

    None of the uranium miners have the ability to enrich the uranium they mine. So, their huge stockpiles are essentially useless.

    If you want to understand this better, I would suggest revisiting [ranchers vs meatpackers](https://mattstoller.substack.com/p/beef-is-expensive-so-why-are-cattle).

  11. you are kinda late to the uranium play, first big leg up already took place, second is pending, then mega crash

    be careful everybody, these are big people plays

  12. All of you 🤡 a need to stop being an echo chamber. There is no shortage. There reason that the supply is down is because production requires storage and storage is the constraint.

Created a token sale contract and gas usage is different from my Rinkeby test

Robinhood will kill safemoon.