Uranium’s Structure Improves But Consolidation is Likely

• Opportunities in beaten-down junior mining stocks due to high-quality companies being mispriced
• Uranium prices should increase over time due to structural changes in the market towards more long-term contracts
• Still bullish on uranium but take some profits after early gains
• Junk bond market liquidity issues could trigger next financial crisis
• Contrarian investing requires patience and doing your own research

The Bull Case for Uranium

Uranium prices have shown strong gains over the last 2 years, rewarding early contrarian investors. However, there is still an upside ahead amid structural improvements.

Supply/Demand Imbalance Driving Prices Higher

Uranium prices languished near all-time lows in early 2020 before rising around 300% into 2023 on a structural supply deficit. In uranium, the easy money has been made but the big money may be ahead. Uranium at $20 a pound had no love but the price had to go up or the lights would go out. Those were the two choices. You had to figure out 'Is the price going to go up, or is Western Civilization going to end?

Term Market Shift Improves Cash Flow Visibility

A key driver of a bullish view is a structural shift in how uranium is traded from volatile spot price contracts towards longer-term off-take agreements. Up to 15-year fixed pricing deals are now available, substantially improving cash flow visibility. It is possible now for uranium producers, and to a lesser degree uranium developers, to enter into what are an effect forward sales contracts term contracts in the uranium business...for as long as 15 years. There is no other commodity on the planet where you can get topline sales price certainty for 15 years but you can in uranium. This shift should facilitate lower financing costs and higher valuations for producers, underpinning further price upside.

New Reactor Pipeline Supportive

Increasingly, new reactor construction globally, with 58 plants underway globally, acts as justification for durable demand growth. If you are Building a new nuclear power plant...typically you borrow about two-thirds of the cost of the plant...increasingly the lenders are requiring you to have enough uranium contracted for long enough that you amortize at least 60 or 70% of the loan with uranium that you have already secured. With new plants requiring certainty of fuel supply to secure debt financing, this should spur further term contract activity.

Risks - Dependence on Favorable Macro Environment

The uranium sector remains heavily dependent on the prevailing monetary policy settings and macroeconomic environment:

• Any shift to a more persistently hawkish policy stance from major central banks would remove a key pillar of supportive real asset pricing
• Similarly, declining inflationary pressures could quell demand for inflation hedges and undermine performance

While reactions may prove short-lived, the historical volatility underscores why continuous assessment of macro developments must be integral to any uranium allocation as sudden swings often overshoot fundamentals. Geopolitical developments also warrant close tracking as nuclear power adoption frays over security concerns amid conflicts between major military powers. Any deterioration in diplomatic or trade relations between the West and key growth markets could stall progress.

Finally, while the contracted market shifts do promise to strengthen pricing, junior miners yet to enter production remain heavily influenced by the spot price in attracting finance. As developers seek to migrate revenue towards a term contract model once operational, they must traverse the financing stage exposed to fluctuations.

Taking Profits, But Upside Remains

While positive on further upside, take profits on early gains. In uranium the easy money has been made...sell enough of your junior uranium portfolio that you have the rest of the portfolio for free...hold the rest because of structural changes in the uranium market, particularly around the term market that the cost of capital for Uranium developers will be much lower. This underscores a long-term conviction in uranium but a recognition that substantial share price appreciation has already occurred. Valuations may require resetting to levels that attract fresh capital. Until then, volatility could remain heightened around macroeconomic uncertainties.

The Investment Thesis for Uranium

• Current market conditions provide an opportunity to gain exposure at reset valuations - target junior developers with quality assets capable of attracting financing
• Identify companies well-positioned to sign long-term off-take agreements once project financing is secured
• Seek jurisdictions with historical political support for nuclear power - avoid fringe uranium districts
• Validate management expertise in permitting, development and contracting - explore stage of permitting process
• Prepare for volatility and macro sensitivity - have capital ready to average down on pullbacks

In summary, while uranium has already outperformed broader commodities, there is room for further upside driven by cash flow improvements from a more contracted-based trading environment. However, investors should be selective and monitor external risks, principally on the policy front, very closely. Significant early-stage gains suggest a period of sideways price action is plausible before fundamentals reassert themselves.

Substantial early price gains suggest a period of consolidation may unfold while macro drivers remain pivotal. Investors are advised to apply appropriate caution and patience.