$URA or $NXE - Uranium: Start of a Commodity Supercycle

Uranium. $URA Maybe Uranium isn't as sexy as some over-hyped under-developed treadmill with an iPad glued to it that kills babies, and it is lacking in buzzwords like "cloud data analytics," but uranium is energy. And everything we do takes energy, and this is the cleanest, densest, most likely candidate for the immediate future. There are already big incumbents in energy that need to get shouldered aside, so this will be a slower play than the up 50% in a week flavors of the month (which then falls 90%), but this is the real deal. With calls you can still get that 50%, or 500%, but shares will take some time. That said, NXE is up 18.8% in 5 trading sessions, and URA 12.08%. Just barely OTM calls versus last week are up 360% and 500% for NXE ($5 and $4 front month).  Uranium has a serious bull case of ahead of it. A new fund is in town (Sprott) who is buying up all the physical uranium. Get ready to gap up. Yes you have heard some of this before, and I peddled Uranium a full on year ago, but this fund is a market mover and it changes everything. TLDR, 1) since 2019 supply has been below demand for uranium as the market continues to deal with a supply overhang and over-investment by miners from the previous market cycle. COVID then reduced supply by a further 30% through mine closures that have continued for 2021 and the supply overhang is finally gone. 2) More nuclear reactors are being built worldwide than decommissioned, developing nations have hopped on board the nuclear train, and 3) if any country is serious about getting to carbon neutral then the only realistic avenue is via massive expansion of the nuclear fleet. Lastly, 4) there is a new physical trust (Sprott) busy buying up all of the uranium and driving up the spot price. It’s working. Uranium spot is $34.60 right now, 2007 was $137. That’s a lot of upside baby. Oh, and did I mention that the Uranium market is small? Tiny. Super tiny. WSB could blow this thing up. There isn’t an entire industry of traders, hedgers, and dilettantes (that’s a nice way of saying degenerates) trading U like there are for oil or other commodities. edit: it begins! Massive gap up today (Uranium spot updates daily, not constantly like oil) from $34.60->$35.65. 1. The Setup: Uranium is already on a 5 year trend line Uranium has been in a bear market since 2007. It started to finally sell through the over supply and over investment of the last market cycle and has been climbing from its low of $18.50 since 2016. This was already a 4 year trend line, and then COVID came along. COVID changed the uranium market in two main ways. First, it dramatically reduced global supply by about 30% in 2020 and 2021 due to mine closures by many of the majors and juniors. These closures have allowed the sticky overhang from the last decade to finally get put on the spot market. Second, there appears to be an OPEC+ of uranium forming. Miners, no doubt still traumatized from last time they aggressively expanded productions, are not opening new mines even as spot prices surge. Instead, they continue to provide quarterly guidance that they are operating below capacity for the rest of the year, and are selling old supply. They aren’t formally a cartel like OPEC is, but there seems to be some game theory going on here. It is in the miners' best interest to try to exactly match the demand of U on a global scale and then be able to dictate the price. Since fuel costs are just 2% of the operating costs of a nuclear reactor, utilities can also stomach significant increases in spot prices without effecting their generation rates of ~ $.02/KwH (as cheap as coal, far below all renewables in pricing). U is $34.60 right now which is 75.24% below its peak in 2007. In a market with all-time highs all over the place, U has a long way to run. What will miner profits be if U hits $100+ again? Massive. 2. New Demand: Global demand has outpaced supply Planned Reactor Starts in Gross MWe of new capacity (from world-nuclear.org) 2021: 5,711 2022: 13,559 2023: 13,276 2024: 7,569 2025: 5,112 2026: 6,997 2027: 4,100 Credit Suisse offers their own global view of supply & demand here. Get your sunglasses on as this assumes the US fleet is shrinking into 2030. That likely won’t be the case. See comments #1 below, automod doesn't like my links. First, if you are from the US then you are likely biased against nuclear. Get over it. The US has a very old fleet and has been periodically retiring plants rather than performing maintenance. I’ll get back to the US later, but the global view is very, very positive. Globally, many developing nations are starting a nuclear fleet. It’s cheap and it doesn’t pollute. India, Slovakia, Belarus, and Pakistan all have new plants started or starting in the next year. France continues to expand and sell energy, while China seems serious about cutting CO2 emissions and is massively expanding their existing fleet, as well as breaking ground on the world’s first SMR earlier this year. So back to the USA—the US mostly acts as a drag. A reactor in New York just closed, and others throughout the country are always wavering on the edge of retirement. This is set to change, but it depends upon politics, so we’ll see (and the right likes nuclear too, it’s not just about the left's CO2). The Secretary of Energy is committed to keeping every single US plant operating as it prepares to transition to a fleet of fast breeding, small modular reactors (SMR’s) in the “late 2020s, early 2030s.” (this just means highly fuel efficient with far, far less waste, and reactors the size of a 3-4 story apartment building instead of a city block. Each will power 500,000+ homes, so they can be “close” to cities they power and also reduce infrastructure costs.) She is working with legislatures to allow all currently operating plants to essentially receive carbon credits as an incentive for utilities to keep the plants running and well maintained until the SMR roll-out. Yes, this is a long horizon for the US, but the US is only one part of the uranium market and a very minor part of this bull case. Globally, supply/demand are already tight, and the world fleet is slated to expand. Utilities can see the writing on the wall and will want to start placing orders now for future delivery (spot market for Uranium is quite different from other commodities—purchasing, delivery, enrichment, and feeding take years). You can bet these utilities are looking at supply/demand graphs and already panicking. Spot is going to start gapping up instead of ticking. 3. Green Energy: The Elephant in the Room Nuclear power is the greenest scalable energy on the planet. Hydro destroys entire riparian ecosystems, wind and solar are both CO2 heavy in terms of manufacturing and are slow ROI on the carbon expenditure as well as having short functional commercial lifespans, while geothermal is quite literally tied to very specific locations (OK, I don’t know anything about tidal, but other than reading about some plans being nixed by NIBY Boomers I’m not seeing it either). These renewable forms of power generation have another cost: land. Aside from geothermal, these are not power dense generators. You can't put 12,000 acres of wind turbines next to NYC. Here is an article working through the cost in land to electrify just British Colombia’s transport grid. The takeaway is that nuclear wins by a landslide: 2.4 m2/kWh versus solar’s 36.9m2, hydro’s 54 m2, and wind’s 72.1 m2. If you want to electrify the US transport grid then you can either build some nuclear plants, or convert all of Nevada to a giant solar farm. I mean, what is Nevada good for anyway? Numbers on energy density coming from here: damn you automods, see comments for link #2. The latest generation of nuclear plants, SMRs, are small and safe. They can be built alongside cities to save CO2 and money that would otherwise go into infrastructure. How many more fires are we going to see every fire season as PG&E and other utilities run millions of miles of hot lines all over the country? This too is a cost of the current way of locating and distributing energy. This all changes with SMRs, and all for the better. Biden has made some surprisingly strong claims about aiming the US at net zero, and we’re hardly a climate activist country. If this happens in other countries, and perhaps the US, then it means we are looking at hundreds upon hundreds of new nuclear power plants in the next two decades, not just the few dozen currently in the planning stages over the coming 2020s. This will be the renaissance of nuclear, and it is coming. Think about it. If there is any chance in hell of reducing carbon emissions, then nuclear is the path forward. Everything else is a half measure. 4. Sprott Physical Uranium Trust: The T-Rex in the Room This is a new fund from an old hand in physical trusts. Sprott’s Physical Uranium Trust (U.U – Canadian listed, NYSE coming in ~4m) purchases uranium on the spot market and then warehouses it. That’s it, that’s the whole plan. This is meteoric. As shares of U.U are issued Sprott takes that money and buys uranium, which increases their NAV. So long as they have a premium to NAV they keep buying. They’ve only been buying physical uranium for two weeks now, but they’ve already purchased 13.3% of the estimated global uranium production for all of 2021. Read that sentence again. 20.59m lbs of the projected world supply of 154m lbs. Jesus Christ are these guys a market force to be reckoned with. How is this not illegal? They've only been buying for TWO FUCKING WEEKS. Look at spot price versus their holdings. They march up and up in tandem. Spot has gone up 7.1% in the last month, with all of those gains coming within days of when Sprott started buying. See comment link for google spreadsheet of Sprott and spot rate. #3 in my comment. 5. There are short sellers here Some entities sell naked uranium deliveries. In a market as slow moving and opaque as uranium is this probably seemed like a good idea at the time. How much of a factor would this be? I don't honestly know. Uranium is not like other commodities with all their nifty reporting and data. We'll find out? Go long anything uranium. Miners/Exploration: CCJ NXE Use google. Many are too small by marketcap for me to list here, but they are mostly small for a reason URNM U.U (This is Sprott. Buy this, but only if Canadian. Imagine what will happen when this gets NYSE listed in 2022!) URA: ETF of major and minor miners, equipment production, all things uranium Options: As we all know, there are only a few times when dealers work with your play instead of hedging against it, and one of those is when you buy far OTM calls. When you buy a far OTM call the dealer will also purchase or adjust their position matching your direction. So, if you are buying calls (I would recommend calls and shares) then far OTM calls skew delta in our favor. That out of the way, the Uranium market is slow, but Sprotts has started to speed things up. URA 10/22 $25c is about as high as I would go without going longer dated. After that, June 2022 $30+ is cheapish. No doubt you will all ignore this and buy something idiotic like front month $30. Really, don’t do that. NXE 2/22 or 12/22 $5 or $7. I did a few call debit spreads of buying 12/22 $5, selling $7. Probably should be greedier, but it seems so safe. What could go wrong? Shares: Buy NXE & URA. My positions: URA & NXE shares (some other too small of marketcap to list) URA 10/22 $25c URA 6/22 $28c & 30c NXE 9/17 $5c NXE 12/22 $5c NXE 12/22 $7c

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Sep 2, 2021

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$URA or $NXE - Uranium: Start of a Commodity Supercycle

bullish

Uranium. $URA

Maybe Uranium isn't as sexy as some over-hyped under-developed treadmill with an iPad glued to it that kills babies, and it is lacking in buzzwords like "cloud data analytics," but uranium is energy. And everything we do takes energy, and this is the cleanest, densest, most likely candidate for the immediate future. There are already big incumbents in energy that need to get shouldered aside, so this will be a slower play than the up 50% in a week flavors of the month (which then falls 90%), but this is the real deal. With calls you can still get that 50%, or 500%, but shares will take some time. That said, NXE is up 18.8% in 5 trading sessions, and URA 12.08%. Just barely OTM calls versus last week are up 360% and 500% for NXE ($5 and $4 front month). 

Uranium has a serious bull case of ahead of it. A new fund is in town (Sprott) who is buying up all the physical uranium. Get ready to gap up. Yes you have heard some of this before, and I peddled Uranium a full on year ago, but this fund is a market mover and it changes everything.

TLDR, 1) since 2019 supply has been below demand for uranium as the market continues to deal with a supply overhang and over-investment by miners from the previous market cycle. COVID then reduced supply by a further 30% through mine closures that have continued for 2021 and the supply overhang is finally gone. 2) More nuclear reactors are being built worldwide than decommissioned, developing nations have hopped on board the nuclear train, and 3) if any country is serious about getting to carbon neutral then the only realistic avenue is via massive expansion of the nuclear fleet. Lastly, 4) there is a new physical trust (Sprott) busy buying up all of the uranium and driving up the spot price. It’s working.

Uranium spot is $34.60 right now, 2007 was $137. That’s a lot of upside baby. Oh, and did I mention that the Uranium market is small? Tiny. Super tiny. WSB could blow this thing up. There isn’t an entire industry of traders, hedgers, and dilettantes (that’s a nice way of saying degenerates) trading U like there are for oil or other commodities.

edit: it begins! Massive gap up today (Uranium spot updates daily, not constantly like oil) from $34.60->$35.65.

1. The Setup: Uranium is already on a 5 year trend line

Uranium has been in a bear market since 2007. It started to finally sell through the over supply and over investment of the last market cycle and has been climbing from its low of $18.50 since 2016. This was already a 4 year trend line, and then COVID came along.

COVID changed the uranium market in two main ways. First, it dramatically reduced global supply by about 30% in 2020 and 2021 due to mine closures by many of the majors and juniors. These closures have allowed the sticky overhang from the last decade to finally get put on the spot market. Second, there appears to be an OPEC+ of uranium forming. Miners, no doubt still traumatized from last time they aggressively expanded productions, are not opening new mines even as spot prices surge. Instead, they continue to provide quarterly guidance that they are operating below capacity for the rest of the year, and are selling old supply. They aren’t formally a cartel like OPEC is, but there seems to be some game theory going on here. It is in the miners' best interest to try to exactly match the demand of U on a global scale and then be able to dictate the price. Since fuel costs are just 2% of the operating costs of a nuclear reactor, utilities can also stomach significant increases in spot prices without effecting their generation rates of ~ $.02/KwH (as cheap as coal, far below all renewables in pricing).

U is $34.60 right now which is 75.24% below its peak in 2007. In a market with all-time highs all over the place, U has a long way to run. What will miner profits be if U hits $100+ again? Massive.

2. New Demand: Global demand has outpaced supply

Planned Reactor Starts in Gross MWe of new capacity (from world-nuclear.org)

  • 2021: 5,711
  • 2022: 13,559
  • 2023: 13,276
  • 2024: 7,569
  • 2025: 5,112
  • 2026: 6,997
  • 2027: 4,100

Credit Suisse offers their own global view of supply & demand here. Get your sunglasses on as this assumes the US fleet is shrinking into 2030. That likely won’t be the case. See comments #1 below, automod doesn't like my links.

First, if you are from the US then you are likely biased against nuclear. Get over it. The US has a very old fleet and has been periodically retiring plants rather than performing maintenance. I’ll get back to the US later, but the global view is very, very positive. Globally, many developing nations are starting a nuclear fleet. It’s cheap and it doesn’t pollute. India, Slovakia, Belarus, and Pakistan all have new plants started or starting in the next year. France continues to expand and sell energy, while China seems serious about cutting CO2 emissions and is massively expanding their existing fleet, as well as breaking ground on the world’s first SMR earlier this year.

So back to the USA—the US mostly acts as a drag. A reactor in New York just closed, and others throughout the country are always wavering on the edge of retirement. This is set to change, but it depends upon politics, so we’ll see (and the right likes nuclear too, it’s not just about the left's CO2). The Secretary of Energy is committed to keeping every single US plant operating as it prepares to transition to a fleet of fast breeding, small modular reactors (SMR’s) in the “late 2020s, early 2030s.” (this just means highly fuel efficient with far, far less waste, and reactors the size of a 3-4 story apartment building instead of a city block. Each will power 500,000+ homes, so they can be “close” to cities they power and also reduce infrastructure costs.) She is working with legislatures to allow all currently operating plants to essentially receive carbon credits as an incentive for utilities to keep the plants running and well maintained until the SMR roll-out.

Yes, this is a long horizon for the US, but the US is only one part of the uranium market and a very minor part of this bull case. Globally, supply/demand are already tight, and the world fleet is slated to expand. Utilities can see the writing on the wall and will want to start placing orders now for future delivery (spot market for Uranium is quite different from other commodities—purchasing, delivery, enrichment, and feeding take years). You can bet these utilities are looking at supply/demand graphs and already panicking. Spot is going to start gapping up instead of ticking.

3. Green Energy: The Elephant in the Room

Nuclear power is the greenest scalable energy on the planet. Hydro destroys entire riparian ecosystems, wind and solar are both CO2 heavy in terms of manufacturing and are slow ROI on the carbon expenditure as well as having short functional commercial lifespans, while geothermal is quite literally tied to very specific locations (OK, I don’t know anything about tidal, but other than reading about some plans being nixed by NIBY Boomers I’m not seeing it either).

These renewable forms of power generation have another cost: land. Aside from geothermal, these are not power dense generators. You can't put 12,000 acres of wind turbines next to NYC. Here is an article working through the cost in land to electrify just British Colombia’s transport grid. The takeaway is that nuclear wins by a landslide: 2.4 m2/kWh versus solar’s 36.9m2, hydro’s 54 m2, and wind’s 72.1 m2. If you want to electrify the US transport grid then you can either build some nuclear plants, or convert all of Nevada to a giant solar farm. I mean, what is Nevada good for anyway?

Numbers on energy density coming from here: damn you automods, see comments for link #2.

The latest generation of nuclear plants, SMRs, are small and safe. They can be built alongside cities to save CO2 and money that would otherwise go into infrastructure. How many more fires are we going to see every fire season as PG&E and other utilities run millions of miles of hot lines all over the country? This too is a cost of the current way of locating and distributing energy. This all changes with SMRs, and all for the better.

Biden has made some surprisingly strong claims about aiming the US at net zero, and we’re hardly a climate activist country. If this happens in other countries, and perhaps the US, then it means we are looking at hundreds upon hundreds of new nuclear power plants in the next two decades, not just the few dozen currently in the planning stages over the coming 2020s. This will be the renaissance of nuclear, and it is coming.

Think about it. If there is any chance in hell of reducing carbon emissions, then nuclear is the path forward. Everything else is a half measure.

4. Sprott Physical Uranium Trust: The T-Rex in the Room

This is a new fund from an old hand in physical trusts. Sprott’s Physical Uranium Trust (U.U – Canadian listed, NYSE coming in ~4m) purchases uranium on the spot market and then warehouses it. That’s it, that’s the whole plan. This is meteoric.

As shares of U.U are issued Sprott takes that money and buys uranium, which increases their NAV. So long as they have a premium to NAV they keep buying. They’ve only been buying physical uranium for two weeks now, but they’ve already purchased 13.3% of the estimated global uranium production for all of 2021. Read that sentence again. 20.59m lbs of the projected world supply of 154m lbs. Jesus Christ are these guys a market force to be reckoned with. How is this not illegal? They've only been buying for TWO FUCKING WEEKS.

Look at spot price versus their holdings. They march up and up in tandem. Spot has gone up 7.1% in the last month, with all of those gains coming within days of when Sprott started buying.

See comment link for google spreadsheet of Sprott and spot rate. #3 in my comment.

5. There are short sellers here

Some entities sell naked uranium deliveries. In a market as slow moving and opaque as uranium is this probably seemed like a good idea at the time. How much of a factor would this be? I don't honestly know. Uranium is not like other commodities with all their nifty reporting and data. We'll find out?

Go long anything uranium.

Miners/Exploration:

  • CCJ
  • NXE
  • Use google. Many are too small by marketcap for me to list here, but they are mostly small for a reason
  • URNM
  • U.U (This is Sprott. Buy this, but only if Canadian. Imagine what will happen when this gets NYSE listed in 2022!)
  • URA: ETF of major and minor miners, equipment production, all things uranium

Options:

As we all know, there are only a few times when dealers work with your play instead of hedging against it, and one of those is when you buy far OTM calls. When you buy a far OTM call the dealer will also purchase or adjust their position matching your direction.

So, if you are buying calls (I would recommend calls and shares) then far OTM calls skew delta in our favor.

That out of the way, the Uranium market is slow, but Sprotts has started to speed things up.

URA 10/22 $25c is about as high as I would go without going longer dated.

After that, June 2022 $30+ is cheapish. No doubt you will all ignore this and buy something idiotic like front month $30. Really, don’t do that.

NXE 2/22 or 12/22 $5 or $7. I did a few call debit spreads of buying 12/22 $5, selling $7. Probably should be greedier, but it seems so safe. What could go wrong?

Shares: Buy NXE & URA.

My positions:

  • URA & NXE shares (some other too small of marketcap to list)
  • URA 10/22 $25c
  • URA 6/22 $28c & 30c
  • NXE 9/17 $5c
  • NXE 12/22 $5c
  • NXE 12/22 $7c
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