What is happening in the sector? Well it looks like 2021 is going to be the year all catalysts come together to form one incredible bull market for uranium.
Kazatomprom has publicly announced that their supply in 2021 will be severely impacted. Why is that? Because ISR mining in Kazakhstan is a lot like planting crops. A mining solution has to be put into the ground, which will go into the ore bodies and after between 4 and 7 months the solution can be pumped back out together with the uranium ore. The only problem is that the main 'seeding' months where between April and September, right before Kazakhstan winter. They have now missed their main mining time of the year, which means little to no new uranium will be pulled out of the ground next year for the first time in a long long time. With Kazakhstan responsible for just around 40% of the entire global supply of uranium, this impact will translate into a major supply deficit on top of the already existing supply deficit. This year it is estimated that there will be around 120 million pounds of uranium produced, where 180 million pounds was demanded. This means that inventory and mobile supply had to be used to fill this gap, further tightening the global supply of uranium. Let's talk about the wildest situation, which would be every single uranium producer, including at Olympic Dam, just ramps up to full capacity and sell everything into the market at whatever the current price is. Will that drop the price a bit? Sure it will. Will it take care of the deficit and prevent this bull market from happening? Absolutely not.
If this structural deficit happened to any other commodity, the price would absolutely skyrocket. So why hasn't uranium? Because there has been almost no talk of nuclear utilities, the main consumer of uranium, coming into the market to buy new fuel. This will change in 2021 and especially 2022 when 40% and 80% of all utilities in the US respectively will be out of contract and thus not getting their all important fuel for the nuclear power plants.
This contracting cycle comes at the same time as the biggest supply deficit we have yet seen, the closing of several high profile uranium mines, like Orano's Cominak mine, the lack of new uranium mines for at least the next 2/3 years and above all the increasing demand for uranium all across the globe make this entire sector a coiled spring. We do not know when it will go off, but the longer it stays this way the higher the jump and this jump will come. My guess is that there are several small bumps this year and that there will be a huge jump next year which will trigger a bull market that may even eclipse the likes of 2002-2007 and will last between 2-4 years depending on how long it takes for all utilities to sign new contracts and the market to be supplied well again, after which the market will come back down to 'normal levels'.
Lastly, there have been index funds who are restructuring their holdings to have more pure play exposure to uranium. $URA will move from 50% to 70%, adding 32 million dollars to the sector. With a sector that had such a small market cap, inflow of capital like this can move the needle substantially. Just imagine what will happen when the general investment community and all those people who made millions in the previous bull market decide to invest into the sector. That will do more than just moving the needle or spring the coil, that would put the needle and the coil into a cannon.
All signs point to this being the most asymmetrical risk/reward investment you can find in the market. I will not deny the risk it brings, but the potential rewards are so large that they easily write off any risk that might be involved investing in this sector. When all is set and done, those that invested early and held on through all the volatility will be greatly rewarded for their troubles.
Bijkopen, vasthouden, en verkopen in 2025, volgens een random-internet-stranger.