Hey There Income Hunters,
Have you noticed uranium futures soaring recently on the back of strong demand and limited supply?
Well, it’s time to pay attention.
Uranium is currently trading over $40 — up from $30.30 in mid-August and a year-low in the spring of just below $28.
You see, nations around the globe today envision a bigger role for nuclear power in their clean energy programs …
And that includes the US, which is considering allocating funds from the forthcoming infrastructure bill to enhance a nuclear supply that currently accounts for about 19% of our country’s electricity.
But in an odd twist, just as demand is rising, the industry has been hit with a wave of reactor closings and Covid-19 has triggered a decrease in production. Take Kazatomprom, for example. The world’s largest uranium producer has decided to keep production flat through 2023.
Notice the vertical short-term move higher in the chart below …
Even with that spike, there is a huge potential runway for the clean-energy solution.
Today, I will give you the intel on why the metal will rise further and where to get in …
Uranium’s Strange Supply/Demand Imbalance
Understand this: the economics have never been very good for uranium miners.
First of all, it takes billions of dollars to build a nuclear reactor facility.
Then it takes decades to pay off the financing.
Secondly, in the past, even when there was a supply shortage, nuclear utilities would be inflexible buyers and just pay whatever was needed to keep their facilities active.
Today, though, the utility’s demand is greater than the amount of uranium that is mined per year. For the past several years, existing inventories and secondary supplies have made up the difference …
Now the supply/demand projections heavily favor higher prices for the next decade and beyond:
Uranium Bull Market Data
The graph below shows the two previous uranium bull markets …
The current global economic environment and commitment to clean energy provides the foundation for a major bull market in the years ahead.
Here’s what #IncomeHunters should know: at the current $40 price, uranium production is not covering existing demand and it is trading at a price below the cost at which it is profitable to build new mines.
The largest producers Cameco (Ticker: CCJ) and Kazatomprom buy secondary uranium on the market and re-sell it to the utilities under long-term contracts.
But these contracts will be drawn down — and secondary supplies will not last.
In order to get new supply, prices will have to go up substantially.
A New Buyer Has Recently Emerged
Sprott Inc. (Ticker: SII) recently acquired Uranium Participation Corp., which was a Canadian company that held uranium … Sprott purchased the company in July and turned it into the Sprott Physical Uranium Trust, a closed-end fund.
In August, Sprott announced an issuance of $300 million in new trust shares to buy uranium at market …
This moved the price of uranium 25% — and Sprott still has about $150 million more to buy.
Plus they can authorize more sales at any time.
Built-In Floor on the Price of Uranium
With demand increasing from utilities — and now Sprott has demand for their fund — the price of uranium will rise ultimately to $60 or higher, allowing new mines to operate at a profit.
Even then, we could see prices squeeze higher when new demand from government-sponsored facilities is created to meet zero-carbon emission mandates.
Since the Sprott trust trades at a premium to its net asset value, I would consider buying the Global X Uranium ETF (Ticker: URA), which holds CCJ and Kazatomprom , among other top mines and servicers …
Technical Setup for URA
The chart below illustrates the vertical move higher in URA over the past few weeks since Sprott began buying uranium for the trust …
Notice the negative price/relative strength index (RSI) divergence that was triggered when URA took out the previous high from January above 23.75.
RSI did not reach a new high, so we would expect a pull back from this area.
Bring It Home
I am currently holding two uranium stocks: Denison Mines (DML) and Uranium Royalty (Ticker: UROY), which are up 47% and 35% respectively. I’m also looking to purchase a bullish option strategy on URA on a pullback to the $21 price shown above.
I have written at length on a new monetary system that will open up channels for global investment in clean energy. China’s plans for a global buildout of undeveloped nations is a prime example.
Nuclear energy will play an important role in this buildout and the US is quickly moving in that direction, as well.
The Sprott Trust Fund now provides short-term support for the market, and we know the long-term demand will be there.
Live and Trade With Passion my Friends,
Griff