Why Uranium Belongs in Your Portfolio: Big Gains to Come

• Uranium spot price has reached $106, but equity valuations have not kept pace as expected. More sustained price increases needed as a signal.
• Current uranium supply unable to meet demand. Top producers struggling to reach guidance. New production facing delays.
• US focused on small, incremental pounds from ISR restart projects. Canada permits taking time. Africa could help fill the gap but project financing an issue.
• Developers offer potential upside but need to make final investment decisions soon. Market wants to see action vs more studies.
• Caution is warranted with an influx of new entrants to the uranium sector. Stick to seasoned teams with quality assets making tangible progress.

Why $100 Uranium is Just The Start of a Long Bull Run

With uranium spot prices crossing the symbolic $100 threshold, up 300% in 18 months, now is an opportune time for investors to gain exposure to this essential energy commodity. Nuclear power is undergoing a global renaissance amid efforts to transition away from fossil fuels while still ensuring energy security and affordability. This burgeoning demand, coupled with intractable supply constraints, provides a compelling setup for uranium investments.

Interview with Global Natural Resources Fund Partner & Portfolio Manager, Guy Keller

Supply Failing to Keep Up

As Guy Keller, Portfolio Manager at Tribeca Investment Partners, astutely notes: “I don’t see how the supply equals the current demand, and I definitely do not see how supply matches the future demand being added.”

Mine supply has languished over the past decade, with lack of investment leading to sharp cutbacks. Top producers like Kazatomprom and Cameco are now struggling to reach their guidance targets. For example, Cameco’s Cigar Lake facility faced multiple pandemic-related shutdowns in 2022 and continues to ramp up to full capacity. Meanwhile, reactor builds continue apace, with demand growing substantially. China alone has nearly 20 new reactors under construction, while India and others play catch up. This divergence creates opportunity.

“What’s going to drive this higher from here? I’ll say it’s the wrong question. The question is what’s going to stop it going higher?”

Piecemeal Progress in America

In the US, there is a flurry of activity focused on restarting idle capacity. Energy Fuels is representative of this trend, having recently reopened its White Mesa mill. However, Keller highlights that “there’s nothing major that you can see solving the US supply problem.” The incremental pounds from smaller ISR operations will not move the needle in a meaningful way against a backdrop of rising reactor demand. For example, targets to build 12 new advanced reactors by 2030 require substantial fuel, beyond what these piecemeal projects can offer. More needs to be done to shore up domestic supply, whether via consolidation of assets or major new conventional projects. But higher prices certainly help improve the economics around US production.

Mixed Outlook in Canada and Abroad

In Canada’s prolific Athabasca Basin, companies like NexGen Energy are advancing major projects like the Arrow deposit and Rook complex. But as Keller notes, the first production is still “four years away from anything meaningful.” Permitting obstacles and technical hurdles with new extraction methods like jet boring means substantial delays.

In Africa, civil nuclear expansion is gathering steam, with Russian and Chinese interests driving growth in nations like Egypt. Africa represents a wild card in addressing global shortfalls. With past production pedigree and stability in countries like Namibia, the continent seems primed to aid short and medium-term needs. Yet there are financing and concentration risk challenges. Still, with quality deposits from banners like Global Atomic at Dasa and Deep Yellow at Tumas, Africa may hold part of the solution.

Developers in the Spotlight

With major producers lagging and global reactor requirements rising steadily at around 5% annually, developer stocks have seen renewed investor attention. Names like Denison Mines, Forsys Metals, and Boss Energy have all seen strong share price gains year-to-date. Their prospects are bolstered by predictions that the uranium market will remain in deficit until at least 2035 unless prices rise to incentivize new supply. As Keller explains, “I’m moving down that [capitalization] spectrum because everybody now is saying what’s next.”

The cream needs to rise to the top. However, he cautions that the market is watching closely to see which developers can “get their ducks in a row” and make final investment decisions to move forward with construction over the next 12-18 months.

The companies that can get across the finish line with financing and break ground on delivering new supply stand to be the biggest winners in this bull run. Though risks around permitting delays and cost overruns remain, those putting steel into the ground offer an upside from mine buildouts just as chronic shortages may culminate. Boss Energy’s Honeymoon facility expansion in Australia and Forsys’ Valencia development in Namibia are front-runners on this metric.

Influx of Juniors Creates Risk

With uranium’s newfound buzz, Keller warns of dilution risk from less qualified players trying to capitalize on the hype. As he jokes, soon “350 more companies will be turning up saying, hey, we do uranium.” Investors would do well to stick with established operators making tangible progress rather than chasing the latest flashy explorer stories. Between 2007 and 2011, over 600 uranium-focused firms were listed publicly – only for the vast majority to flounder after the Fukushima disaster. As with past commodity manias, many johnny-come-latelies will flame out quickly when easy money dries up. Focus on seasoned veterans capable of moving the needle on global supply rather than those merely riding the wave.

The Investment Thesis for Uranium

With demand still outpacing supply even above $100/lb, the setup remains highly favorable for uranium investments. Reactor requirements will only expand in the coming years as more nations embrace nuclear power’s reliability and energy security. With mining output still deeply constrained, prices seem destined to appreciate further until substantial new production comes online. Utilities and the market seem to direct more attention to Africa in the short run while Canada, the US and Australia play a longer game. Investors would do well to gain exposure now before the wide supply-demand gap becomes even more apparent and drives additional equity upside.

• Fundamentals show a clear supply deficit now and increasing in future
• Reactor builds globally ensure sustained demand growth
• Mine supply continues lagging with top producers missing targets
• US capacity increases are helpful but more production needed
• Africa offers prospects to help fill the shortfall
• Developer equities provide leverage to rising prices
• Quality assets and operators key amid influx of new entrants