Michael continues his discussion on the intricacies of uranium, and we pick up with his analysis of supply. Supply has been constrained by recent cutbacks from Kazakhstan and Cameco as well as other mines being idled. There appears to be some supply-side discipline building in the market.
Secondary supplies are also starting to wane, and there is not much left. This points to an inevitable price rise. The demand picture is beginning to form as a third of nuclear plants will need to buy uranium which will no longer be available from the spot market. They will have to negotiate with the producers. Prices have to go appreciably higher for mines to restart.
The United States used to be self-sufficient when it came to producing uranium but that is no longer the case. They are now entirely dependent on foreign sources which carries geopolitical risk.
In the last few years, most uranium companies have diluted their shares and have been burning cash. There have been some investors but the marginal capital that will take these stocks higher are the general institutional funds. Uranium has not been on their radar because it’s so complicated with sparse data and limited information. The big guys can’t be bothered, and the smaller investment firms can’t afford to do the research.
People need to realize that this seven-year downturn has resulted in a lot of shares being issued by companies. Since they diluted their shares this will dampen the upside potential on many stocks.