Stock indices on Wall Street have rebounded 25–35% from their March 2020 lows. Many gold stocks have doubled over the same period. But the biggest moves I’ve seen across a class of assets is in the uranium space, where many stocks have tripled over their March lows.
And yet, while mainstream financial media have noticed gold—which is a good thing, don’t get me wrong—they don’t seem to have noticed uranium at all.
This is an opportunity—perhaps the hottest speculation in the world today.
That doesn’t come without risk, of course.
In a recent Kitco interview, I said that while I think gold is a great buy because it offers me both safe-haven protection against all the of money-printing flooding the world today and speculative upside, uranium has more explosive potential. That’s a double entendre. Stock prices could “explode higher” or just “explode,” resulting in substantial losses for those who speculate now.
Bad News First
I want to be very clear that I’m not saying that I know for sure what will happen. I’m not saying that uranium prices must rise. And I am in no way, fashion, or form saying that uranium stocks can’t go down.
Here’s some of what could go wrong with this speculation:
- Another nuclear accident would, I have no doubt at all, drop spot uranium prices off a huge cliff and bankrupt most of the companies in the sector. Yes, I know that Three Mile Island produced a lot more alarm than harm. Chernobyl may have had more to do with Soviet secrecy than engineering. And most of the devastation around Fukushima was caused by the tsunami, not by radiation. Doesn’t matter. People will panic, governments will respond, and I think nuclear power will be greatly curtailed. I do not expect this. Such accidents are very rare occurrences, and the industry has learned from each. But the possibility is real, and shouldn’t be ignored.
- Reopening of key uranium mines after the COVID-19 shutdowns end could create a headwind. If so, buyers for power companies who may now be feeling pressure to secure long-term contracts (before prices rise any further) might decide there’s no rush. Speculators impacting the spot market might get spooked. Any or all of these things might happen, but that doesn’t mean they will. So far, none of the big producers in Kazakhstan and Canada have announced ramping production back up again—and even if they do, output for 2020 will still be much less than previously expected.
- China’s massive shift away from coal to nuclear power may be stalled by the damage done by that country’s lockdown. The same could apply to other BRIC countries that, with China, are building most of the 165 nuclear power plants planned or under construction today. This could happen, but I don’t expect it to in a noticeable way. Building nuclear power plants is a big, multi-year undertaking, and these countries really need clean, reliable power. Pulling the plug on these projects is the among the last things they’ll want to do.
I wanted to get all this out in the open so no one can accuse me of being a reckless cheerleader as I make my case for the “explode higher” scenario I see ahead.
Now the Good News
- Mine supply—already below annual demand for years—will be much less than expected for 2020. That’s not an “if” or a “maybe.” That’s happening now, with each day that passes increasing the shortfall.
- Uranium prices slumped in 2019, but nowhere near as low as in previous years. I see this as evidence that the secondary supply that previously took uranium prices so far below the cost of production has been drying up for years, resulting in the upward trend in my five-year chart.
- The uranium breakout of 2020 is happening in the face of a major global economic downturn—and other energy prices cratering. This tells me the fundamentals unique to uranium itself are firmly in the driver’s seat here.
- Cameco’s (CCJ, CCO.TO) Cigar Lake uranium mine remains shut down. This mine delivers about 13% of the world’s total annual mine supply. The shutdown has already been extended and remains indefinite.
- The last time Cigar Lake shut down (in 2006), uranium prices went from about $40 to about $140. I’m not saying that will happen again… but if it does, hold on to your hats.
- While Wall Street is still struggling to recover from the crash of 2020 and many gold stocks have recovered, many uranium stocks have risen well above pre-crash levels. For instance, if we compare yesterday’s close to that of March 2, 2020:
o Cameco (CCJ, CCO.TO) is up 22.8%.
o Denison Mines (DNN, DML.TO) is up 41.7%.
o Fission Uranium (FCU.TO) is up 46.7%.
o Global Atomic (GLO.TO) is 58.2%.
o Nexgen (NXE.TO) is up 62.6%.
- I do not own or recommend any of these stocks. The point remains that while other assets are struggling or dropping like lead balloons, many uranium stocks are taking off—not just from March lows, but from pre-crash prices.
- Best of all, most uranium stocks are still down over a year ago. Uranium remains a hated commodity and most investors are deeply skeptical. That means that many uranium stocks are still relatively cheap, in front of what could be—could be—a monster rally.
What to Do
I think this is a good time to begin building a high-risk, high-reward portfolio of uranium stocks.
Personally, I expect another meltdown on Wall Street to create great buying opportunities in the near term, so I’m waiting for that to happen—or to be sure that it won’t happen. But with or without this buying extra opportunity, I expect the better uranium stocks to deliver in spades if I’m right about uranium prices continuing much higher this year and beyond.
Of course, what most investors want to know is what stocks to buy to make the most of this opportunity. I don’t give away my portfolio, but last November I published a free report evaluating 15 commonly asked-about uranium stocks. I’ve just published an expanded version for paid subscribers, rating 33 uranium companies, and I plan to add more in the next edition of My Take, to offer as much guidance as I can.
But the idea—my case for the explosive potential of uranium stocks in 2020—is yours free of charge.
Caveat emptor,
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