Uranium’s Stealth Bull Market Offers Patient Investors Commodity Profits

• Supply is constrained as inventory declines. This has created a stealth bull market.
• Look for undervalued assets with proven operators in essential industries when investing.
• Much uranium trading has moved from spot to longer-term contracts. This provides price stability and reduces spot price volatility.
• Uranium price needs to rise to +$90/lb to incentivize new mine production to meet demand. Current producers and advanced developers will benefit most initially.
• The uranium bull market is in the early-to-mid stage. Prices may reach $150/lb in real terms. Supply growth can moderate prices.

While spot prices are up 50% this year, equities remain stagnant. This disconnect presents opportunities for investors with a long-term view. Uranium demand is increasing globally. This is depleting excess inventory that built up pre-2011. Meanwhile, supply growth lags as exploration plummeted during the bear market. Term contracting now dominates trading, reducing spot price volatility. These dynamics have driven a structural supply deficit. Prices must rise to +$80 per pound to incentivize production and close this gap. Current low-cost producers like Cameco and Kazatomprom will benefit most initially from higher prices.

Likewise, advanced developers like Global Atomic, Boss Energy, Bannerman Energy, and Paladin Energy will also benefit.

Patient capital can profit as fundamentals outweigh fickle market sentiment. Look for undervalued assets with proven operators in essential industries when investing. Avoid overhyped sectors.

Stealth Bull Market Drivers

Reactor life-extension, restarts, new buiilds and SMRs are increasing uranium demand. This is accelerating inventory drawdowns.

More significantly, the nature of trading has changed. 75-80% of volume now transacts through confidential long-term contracts versus the spot market previously. This provides users and producers with predictable pricing but reduces observable price signals. Term prices currently exceed spot buying by 12-15%, improving miner economics. But dampened spot volatility has masked the market’s strengthening foundation. These dynamics constitute an early-stage stealth bull market still under the radar.

Mean Reversion Offers Deep Value

Uranium’s stealth bull market emerges from unsustainably low prices.

In 1998, it was clear that $10/lb uranium couldn't sustain the industry. But investors associated it with Chornobyl, not electricity, so stayed away from it. This irrational pessimism drove underinvestment. Eventually, the market must balance. You can have higher prices or the lights go out. 20% of baseload power came from uranium. It was clear the price had to rise.

Today, a similar mean reversion may occur. The all-in costs of existing production are near $60/lb, on average. Meanwhile, incentivizing new mines to close the deficit requires +$90/lb. Current pricing around $70/lb remains well below viable long-term levels.

Bullish Triggers Ahead

Several potential catalysts could drive a breakout, according to Rule:

• More extensions, restarts and new builds – Adding reactors expands demand against constrained supply.
• End of destocking – Inventory declines will lead to more mine purchases.
• SPUT activity – This physical uranium fund buying can rapidly impact prices.
• Term market visibility – If long-term prices become public, it could shock complacent markets.
• Production curtailment – Low prices are unsustainable. Output cuts would tighten the market.
• Speculation returns – New interest from generalists could ignite the tiny uranium sector.

Which Stocks Offer Value?

Investors should overweight current producers like Cameco and Kazatomprom due to their leverage to higher uranium prices. These industry leaders offer deep-value trading at decade-low valuations. Cash-flowing companies have advantages over the rest - they make money. Near-term producers, with economics studies, completed and with licences in hand plus access to capital when they require it, will provide bigger derisked gains for investors.

Speculative juniors offer greater upside but much higher risk. Avoid untested teams and marginal projects. Instead go for large, low-cost assets with proven builders and operators. This leaves investors looking at maybe 10 public companies globally.

Geopolitical Risks Overblown

Many investors fear instability in Kazakhstan, a major uranium supplier via Kazatomprom. All jurisdictions carry risks.

Furthermore, uranium markets adapt. Sanctions reroute rather than restrict commodity flows. Alarmism over producer nations aligning with Russia is overblown. France overstayed its welcome in West Africa. The coup leaders will tilt to Russia for protection, not ideology. But production will flow to the highest bidder regardless.

Instead of eliminating risky jurisdictions, diversify them based on value.

While producers will reap windfalls, disciplined new supply will limit sustained excessive spikes.

The uranium remains in the early to middle stage of its bull market. Several factors suggest the bottom occurred, but timing the top remains guesswork. Expects a measured ascent given supply elasticity. As attractive as it is to think of $200 uranium, we likely don't need to reach the old $140/lb highs to incentivise producers and developers. Economically rational dynamics will ultimately prevail.

Patient Investing Rewarded

This latent bull market requires patience to realize gains. It also requires a mindset which understands value, accepts volatility, and waits. Declines become buying opportunities, not tragedies when you know an asset’s worth. Compelling fundamentals obscured by investor apathy create opportunity. Uranium is poised to reward investors with the vision to look beyond popular narratives and act on underlying value.

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Uranium is back!