Supercycle Uranium Profits in 2023

“Over a 10 year cycle, I wait 8 years to make money for two to three years, but I make so much money during those two to three years that it’s more than worth the wait.”

That’s how a friend and mentor described profiting from uranium bull cycles. The wait and timing can be frustrating; the reward for that patience is often life changing. 

The good news for us is I believe we are in the very first third of the uranium bull supercycle. The part of the cycle where even uranium bulls question whether the move is sustainable. 

Supercycle Uranium Profits in 2023.

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Investing in Uranium Cycles

In early 2022, the uranium spot price and the related equities came to life with an impressive run that saw many companies up 3x, 4x even 5x from bear market lows. The move had many thinking they had missed the run. 

Nothing could be further from the truth.

The second half of 2022 saw a textbook consolidation that I believe is the precursor for the next run higher, the violent kind of run that many wait years to profit from.

So how did we get here? How are we at a crossroads where the price of uranium goes higher or the lights really do go out? A bit of history.

Uranium’s previous bull market kicked off in 2006 when Cameco’s Cigar Lake Mine — which provides ~7% of global annual uranium supply — flooded while it was being built, prompting a run on uranium that sent the spot price to a jaw-dropping US$140 per pound.

I think the uranium price will overshoot that closer to $200/lb. (Here are three uranium stocks to own as it does.)

It simultaneously sent uranium stocks significantly higher in percentage terms with names like UEX Energy, Energy Fuels, Laramide Resources, and International Enexco delivering a few thousand to +100,000% returns.
The commodities sector is known for the stocks within it offering leverage to the underlying price of the commodity.

The uranium subsector epitomizes this.

Then it happened. 

In March of 2011, following a major earthquake, a 15-meter tsunami disabled the power supply and cooling of three Fukushima reactors, causing a nuclear accident. All three cores largely melted in the first three days.

Human toll from the earthquake and incident aside, another major casualty was that any goodwill and momentum that nuclear had achieved up until that point had vanished.

Countries around the world shuttered active and future uranium plants blaming nuclear and not the antiquated engineering of the plants for the catastrophe.

What followed was a decade of underinvestment and the worst bear market for uranium miners anyone had seen.

Fast forward to 2022. What were already lofty climate change goals by governments around the world became impossible without uranium as a large part of the clean energy solution. This was exacerbated by Russia’s invasion of Ukraine. What followed was uranium surging from the low $20’s to over $60/lb.

Uranium Stocks Today

What was a pivot towards carbon-free energy became a matter of national security for governments around the world after the Russian invasion.

Energy security was no longer a white paper topic to be discussed by academics; it became a matter of survival for many countries that shun nuclear without ever thinking of how to replace it.

Back to the supply/demand fundamentals. There are about 440 nuclear power plants around the world that require approximately 180 million pounds of uranium every year, according to the World Nuclear Association.

Uranium mines produce about 130 million pounds. Can’t make that up on volume. Once upon a time, that supply deficit was filled by stockpiled material, the majority coming from Russia. 

Not only is current demand outstripping supply, future demand promises to send uranium prices to new record highs.

China plans to build 150 new reactors between 2020 and 2035, and Japan also aims to boost nuclear capacity as does South Korea. France plans to build 14 new reactors, and the European Union has proposed counting nuclear plants as a green investment.

Wanting something and needing something is very different. Much like lithium, the world needs uranium. Sourcing sufficient supply for the next several years is presenting an opportunity that is going to make fortunes for those positioned ahead of the mania.

Despite the bipartisan support here at home and abroad for nuclear, delivery will prove costly and will bring with it many challenges. Challenges that bode well for price spikes.

For years, the single largest consumers for uranium have been the utilities. Utilities which have had the luxury of not needing to go to the market to source uranium since contracts weren’t scheduled to roll over until 2023-2024. That’s all changing as we speak.

On February 21, 2023, EnCore Energy (TSX-V: EU)(NYSE: EU) announced it had secured its fourth uranium sales agreement with the addition of a purchase sales agreement.

The devil is in the details. The agreement was with a Fortune 500-listed United States utility. 

That’s a big deal because the utilities are the single-largest consumers of uranium in the world, and everyone has been waiting for the utilities to get off the sidelines and start deploying capital.  

This agreement is described as supporting EnCore's business strategy to provide a domestic uranium supply commencing at its 100%-owned South Texas in-situ recovery (ISR) uranium processing plants.

The uranium sales agreement is a multiyear agreement commencing in 2027. It covers firm deliveries of 650,000 pounds of U308 with an option to acquire up to 400,000 pounds U308 under a two-year extended term, if exercised. 

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The sales agreement is based on market pricing with a floor price well above the company's current projected costs of production and an inflation-adjusted ceiling price significantly higher than the current uranium spot market pricing, providing the U.S. with assurance of domestic supply along with cost certainty.

It’s interesting that the company – likely at the utility’s request – declined to specify what that floor price is but I will speculate that it is much higher than the current spot price of just over $50/lb.

I’ll also speculate that this is the first of many utilities stepping in and starting to secure future uranium supply at much higher prices. 

The cost input to the utilities is minimal, and supply is more important than price.

This time is different.

These are the best supply-demand fundamentals ever in the uranium space.

Either the price goes up or the lights really do go out. 

And yes, the pivot to clean energy is the most important trend for the next several decades.

I plan on doing with uranium what I’ve done with lithium: position and reap significant profits from the clear megatrend that’s before us.

Gerardo Del Real

Gerardo Del Real
Editor, Daily Profit Cycle